How the Distribution Process works and the Money Flow

For theatrical release it goes something like this:

The Producer sends the film to the Distributor who makes copies and advertises the film and then sends the 35mm or digital prints to Movie Theatres.

The Theatres sell tickets and return to the Distributor 1/2 of the gross ticket sales. The Distributor deducts fees and advertising expenses and sends the balance to the Producer. The Producer, repays the investors and then splits the revenues with investors according to contract.

Let's say a film was made for $300,000 and the US Box Office Gross is $5,000,000.
The Theatre Exhibitor takes 50%. That leaves $2,500,000 to be returned to the Distributor. Distributor then takes a 35% fee (a deduction of $87,500) which leaves $2,413,000. Let's assume a substantial budget of $2,000,000 was spent on Prints and Advertising and those cost are deducted leaving $413,000. Under the 'Standard Distribution Deal' the Distributor splits the profits 50-50 with the Film Production Company receiving $206,500.

However, this is just an EXAMPLE.

In reality - Independent pictures generally do NOT make money in Domestic Distribution. Normally films made for under $300,000 do not get U.S. 'wide release.' The reason low-budget Independent movies do not make money from US domestic release - the revenue from ticket sales are gobbled up by the 50% share of the theatres, the Distributors fees, and the cost of prints and advertising.

So why bother with a US Domestic Release?
Actually many films do not bother - and go straight to Foreign, DVD, Television, etc. - and make significant money.

However, low budget independent films can get' limited releases' of screens in a few cities that increases the value for other sales by gaining reviews and by playing a few Festivals (there are 1,200 Festivals) that may garner some nominations or awards and thus creating a value for other markets.

With or without domestic distribution the Film Production Company retains International rights - where the major share of profits are for BOTH major Studio pictures and Independent films.

The rest of the world is eager to buy American movie products. The movie is sold at major film markets, e.g., Cannes Film Market ('Marche' - not the Festival - 'Marche' is where the real business is done), the American Film Market (AFM) and the European Festival Market (EFM) in Berlin. There are 35 nations ready to buy the film for distribution in their countries for theatre and television releases. The total could be anywhere from a bottom of $300,000 to $3,000,000 to tens of millions of dollars. And all that money accrues to the Film Production Company - minus the costs of Foreign Distribution.

The following chart shows the difference between US Domestic revenues and Foreign revenues for a sample of blockbuster films.

There are two ways to sell to the Foreign Market:

1) Sell the film without a Distributor by setting up a booth or a suite at the major markets - this costs time and money (air fares, hotels, etc., as well as a $10,000 registration for each market at Cannes, AFM, EFM, MIFED, etc. Or ...
2) Contract with a professional International Distributor/Sales Agent.

International Sales Agents are always looking for new product, as well they can help sell, license and finance film product. They have established relationships in key territories, they know what products will sell in what countries and for how much, and what genres are most popular, etc.

Their registration fees for the several markets are amortized because they are selling many films. Generally they sell at NATPE, AFM, MIPTV, MIPCOM, MIFED as well as mini-markets and festivals. The fee commissions are negotiable and a highly contested part of the agreement. Fees can be from 10% to 25% depending on whether or not the Foreign Sales Agent provides financing, in addition fees are adjusted for high and low budget films.

The contract used by most foreign sales agent is the IFTA - Independent Film and Television Alliance. Sales agents account on a quarterly basis for the first two years, semi-annually thereafter. Statements and payments are no later than 60 days after the calendar close. The Producer has the right to audit. All copies of contract are to be aligned with the statements. Foreign sales agent agree that if there is an under report of 5% or more the sales agent will be responsible for the cost of the audit.

The full contract can be purchased at the IFTA website:   http://www.ifta-online.org/   A qualified Production Attorney can guide one through the labyrinth of this contract.

Prominent Foreign Sales representatives are usually members of IFTA (10850 Wilshire Blvd., LA, CA - 310-446-1000). A good article prepared by the firm of Blake and Wang, P.A. explains how to protect against possible unscrupulous foreign distribution practices:   http://www.optimalegal.com/sys-tmpl/internationalfilmdistribution/

NOTE: Any Foreign Sales Agreement should have the Producer's right to approve each sale in each market. Producers should also stipulate in the contract that Cross-collateralization (bundling your film product with others) is prohibited.

Distribution is where the money is and  below are a  few tips on getting the best possible Distribution deal.

1) Do not put all your eggs in one basket. Divide the distribution into a US Domestic distribution and Foreign Distribution.
2) Do not contract with a Foreign Distributor to have long term agreements. Limit to 3 - 4 years. However, extend the contract if performance benchmarks are met.
3) Do not allow Distributor to apply expenses for attending Festivals such as the Cannes Film Market, AFM, etc, for more than 1 year.
4) All expenses should be verifiable.
5) If possible get an advance that will cover the production cost, but if not, negotiate for a 50-50 share of distribution costs until the production cost is realized.
6) Restrict Distributor's third-party licenses to 12 years.
7. Negotiate reasonable territory minimums with a fee schedule for each country to avoid cross-collateralization with the distributors other films.
After Foreign Sales there is the supplemental markets of DVD sales and rentals, Netflix, Direct TV, Dish Network, world-wide Network and Cable Television, and auxiliary markets throughout the world.

Can a film without a U.S. Domestic Theatrical release make money? Yes, many movies are very profitable for straight to International release, DVD, etc.

But there's now a bigger elephant in the room other than DVD distribution - NETFLIX.

Netflix has gone over 25 million subscribers and pushed Blockbuster into bankrupcy; and now Netflix is getting more involved in original programming, especially television series and is also planning to go International.

Link to the story: http://www.latimes.com/entertainment/news/movies/la-fi-ct-netflix-20120205,0,6597402.story

Expect more and more movies delivered via the Internet:  More competitors are on the way, e.g. Boxee Inc. (associate of NetFlix) iTunes and Amazon VOD pipes media directly to TV's and media devices such as video game consoles, Blu-Ray players, etc. RedBox, the kiosk company, has 30 million active customers, and they just teamed with Verizon for streaming video. Verizon has 9 million broadband customers and 109 million wireless customers.

Filmmakers can now make their films available online and wireless to consumer markets via iTunes, Amazon, Hulu, Netflix, SundanceNOW, YouTube, Verizon, etc. while still retaining ownership of their work

Does this mean that movie theatres will disappear? No, but the importance to independent film producers to be on the Big Screen is on the decline. Even DVD sales are less important.

In fact, the LA TIMES recently reported that ONLINE movie viewing has surpassed DVD'S.

'Content Providers' (the people who actually make movies) will certainly not cry that the movie theatres will shrink as noted from the following selection from How We'll Watch Movies in 10 Years Without Theaters by Mark Lipsky, TheWrap.com

"The only loser in the scenario is the national theater circuits whose extinction is inevitable. Content creators, especially the studios, will reap benefits never before dreamed with the elimination of the theater as middleman."

Evidence of this prediction is as the news of February 2011 with the startling industry shake-up of the two largest distrubtors, Regal Entertainment Group and AMC Entertainment, launching a joint venture to acquire and release independent movies. A major blow to the stranglehold of the major studios. Link below:

REGAL & AMC Indie venture

No longer will they be forced to share an exorbitant percentage of revenue with an exhibition "partner" nor will they ever have to go to sleep crying in their pillows about all that popcorn revenue that the circuits keep all to themselves on the back of the studios production and marketing skills.

And the revenue will go instantly into their bank accounts eliminating the need to kiss the circuit’s ass in order to a) get films booked in accordance with the content producer’s best marketing plan; b) ‘settle’ engagements with the hope of getting the circuit to agree to pay the content producer based on the original terms agreed to; and c) actually get them to cut a check."

Full article: