Distribution Agreement

What follows is a breakdown of a typical distribution agreement. The goal here is to do away with legalese and explain the document in plain English. Keep in mind however that agreements will vary from one company to the next, and you should always consult with your lawyer to iron out the details and understand exactly what it is you are signing.

Definitions

Name, Company Name, Territory

This should be your company name or the name of your LLC. Make sure the Territory reflects what you had discussed prior to contract draft. The sales representative will be referred to as Distributor and will be selling your film to other distributors.

Term

This refers to the amount of years for which the contract is valid. You always want to try to negotiate for as short a term as possible in case you’re not satisfied with the rep’s performance. On the other hand, the rep will negotiate for a minimum of 5 years and possibly up to 15 years to have more time to recoup the investment. Additionally, the distributors who buy your film will ask the rep for a minimum of 5 years.

Exclusive Grant of Rights

When you sign a distribution contract, you grant your rights to the rep for the length of the term agreed upon. Remember that unless you’ve signed a traditional distribution deal (where you sign off all of your rights); anything not covered in the contract is still open to negotiation elsewhere.

Distributor’s Fee

Commissions for sales reps are usually in the range of 10% to 30%, with 25% being the most common. The percentage is taken off the top of the sale. Most of the time, reps are able to get a much better price than what you would be able to negotiate, so the fee is more than worth it. Moreover, independent sales reps do not have the overheads that a larger company would have, so they are likely to accept lower commissions.

Distributor’s Expenses

This is where the rep specifies a lump sum to cover expenses. The sum is taken out of the producer’s share of gross receipts. The expenses in question include servicing, promotion, marketing, delivery, publicity, distribution, etc. This section of the agreement specifies that the rep will retain all revenue until the specified sum is covered.

So if the sum agreed upon is $20,000, the rep will start paying you your share (minus his percentage) only after he has raked $20,000 to cover his expenses. While a rep will most often break even on expenses, some reps will take advantage of naïve producers and set this fee very high. Be aware that anything above $30,000 for a film without a theatrical release is probably out of proportion.

Producer’s share of remaining gross receipts

The producer’s share is what remains after the rep has taken his fee and recouped all expenses. For example:

  • The rep is allowed to recoup $20,000
  • The rep makes a first sale for $10,000
  • From that income, he removes his share of 25%, which is $2,500. This leaves $7,500 which goes to the recouping expenses.
  • The second sale makes $40,000.
  • The rep takes 25% with amounts to $10,000. He takes out another $12,500, which is the remaining balance of the costs to recoup. That’s a total of $22,500 taken out.
  • The remaining sum of $17,500 goes to you.
  • From this point onwards, the rep takes 25% of any income, and the remaining 75% goes to you.

Deliver of Picture

This is a list of items you are expected to deliver before the rep commences with his work. It usually includes:

  • Digibeta master and Betacam SP with certified QC report from your lab
  • Publicity
  • Music cue sheet
  • Bonus materials
  • Chain of title verification (copyright)
  • Music and Effects track
  • Slides (slide format or disk)
  • Synopsis
  • Dialogue script
  • Trailer
  • Errors and omissions insurance certificate

The rep will insist on having these before starting any activity because distributors will want all of the items on this list. It is therefore almost impossible for a rep to market your film if any of the items are missing. Other reps will use this as a tactic to delay payment as much as possible.

Accounting Records and Audit Rights

This sets the accounting cycle. Your rep will attempt to account to you once a year, but it’s worth the effort to push for quarterly accountability. Not only will this help you keep closer track of sales, but you will also be receiving payments quarterly.  The accounting records and audit rights section should also state your right to audit (at your expense) the rep’s accounts once a year.

Default

The default section is probably the most important part of the contract. It explains how, should one of the parties not respect the contract in any way, the other party may—in writing—specify how the contract is being breached, resulting in a 30 day time frame for amends to be made.

For instance, if your accounts are due quarterly but the rep fails to send you the documents, you may write to your rep requesting the accounts within 30 days. If the rep fails to comply, you may leave the contract. Remember though that this works both ways.