You’re Doing it Wrong: Why filmmakers (and content creators) are thinking of foreign sales all wrong

With the launch the newly minted DCL comes a new post every few weeks. A lot of these will focus on content licensing/sales/rights issues, and this first one is no exception.

***

SO you (or your rep) are ready to start selling/licensing the rights to your finished film, series, etc. to distributors. A lot of the deal points are pretty cut and dry but you end up negotiating with your distributor (with some trouble) as to whether or not the inclusion of worldwide rights is warranted as part of the deal.

The reality of how to approach this issue, as you might suspect, isn’t so simple. The old-school way of thinking, still championed by many (in my experience this is still very common in dealing with European sales agents) is that if at all possible, you want to sell rights on a territory-by-territory basis. Generally speaking, there are two big reasons why people gravitate towards this approach:

1.) People often assume (with good reason, as this is largely accurate) that distributors only really “earn” their slice of the pie in their home territory. They also assume (this is less true in ancillary markets these days, but used to be par for the course, too) that distributors who license worldwide rights will just sub-license foreign rights to local distributors to do the actual “heavy lifting” in distributing the film — which means an added a middle-man to take a massive cut of your proceeds in foreign territories.

2.) By selling territory-by-territory, you’re working with many smaller distributors rather than handing your worldwide rights to a single large one; smaller distribs have less inherent leverage in negotiations and, as such, you’re likely to get better deal points when you sign with them.

With prominent pieces of content, say, films which have been either “qualified” by top-tier film fests or a high-profile cast, the above arguments hold water—if you have a high-value film, the above two points will have to be weighed very heavily in considering any offer you might get for an “all-rights, all-territories” deal from a distributor and negotiated accordingly.

***

Most filmmakers, though, will never make a high-value film. Instead, most filmmakers will cast an either relatively unknown cast (though, if they’re thinking about distribution, may focus on relative unknowns who have a fan-base they can tap) and will only play at mid-tier film fests. As such, most filmmakers find themselves in a situation in which while there may be some interest in their film from distributors, those distribs aren’t going to exactly getting into a bidding war over them. The sad truth is, there’s a massive over-abundance of supply, whereas the demand stays relatively static over the years – so sales where filmmakers really have significant leverage in negotiations are actually very few and far between.

In selling a “small” or “mid-level” feature in our current distribution environment/market, it actually rarely makes sense to focus on selling rights territory by territory rather than to a single worldwide distributor. Here are a few reasons why:

1.) If you limit the territories in which your distributor can distribute your content/film, you “tie their hands” and prevent them from including you in distribution opportunities that come their way.

In future posts I’ll be going into the more detailed business models of the most common types of film/video distributors today but, for now, the crux of this first point lies in one thing large companies have that small companies (as well as individual filmmakers) don’t: scale. A distributor that handles a lot of films – hundreds a year, for example, as most aggregators do – is the most likely to push for worldwide rights. There’s a great reason for this – the fact that they handle so much content is the very reason it makes sense for filmmakers to sign away these rights; by holding a lot of inventory, these companies are in the best position to get into favorable relationships with regional distributors or future worldwide distributors that operate in some not-yet-foreseen ancillary market.

As an example: In many cases it won’t make financial sense for a U.K film distributor to go through the trouble of setting up a relationship with a filmmaker (signing deals and forming working relationships take time, time = money) of an “American” indie that’s less than an already-qualified hit. But—that same distributor can possibly justify making a deal with an American film distributor that holds the rights to dozens of American indie films. Even if the U.K. distributor only licenses 5 or 6 from that library of dozens of films, that’s 5 or 6 times the value for the same amount of work—and those 5 or 6 films are now seeing revenue from the U.K., revenue they wouldn’t have seen if their respective producers tried to sell off those films’ rights into that market independently.

Middle-men exist in content distribution because relationships are expensive (in overhead costs) to set up and manage: licensing a library of content from (or setting up an output partnership with) a company with dozens, even hundreds of titles is only marginally more complex and time-consuming than setting up a relationship with an individual filmmaker.

It’s true that if you sell the worldwide rights to a film to an American distributor who only markets and promotes their content in America they’ll often sub-license the foreign rights to other other distributors who actually do the heavy lifting abroad – and it’s true that you’ve essentially added another layer of middle-men cutting into your gross. But— even if there may be more people taking slices of the “foreign gross” pie you have to ask yourself – if the pie never would have been made under any other scenario, isn’t this still a better option than the alternative?

2.) The more distributors you involve, the more costs you incur. Sales & delivery isn’t cheap.

This is an often-overlooked cost because, well, people tend to ignore costs that don’t come out of their pocket as tangible money. The truth is, though, that there are a slew of unseen or poorly accounted-for costs associated with rights management/sales: The more territories you sell off individually, the more time is sucked from your next project or promoting/marketing your current one. Beyond your time and energy (which shouldn’t be written off – there’s a reason the old adage of “time is money” continues to hold up) the small hard costs you incur – (i.e. incremental costs like, say, shipping fees) add up. Beyond the aforementioned, while distributors may shoulder the most expensive fee associated with distributing video content — encoding costs (sort of; we’ll get back to that) in the end, this usually costs you money, too. Those encoding costs that the distributor covers to encode and deliver your film to video platforms? Generally speaking, those are expensed against your royalty payments. Worse yet, a lot of distributors – even well known, reputable ones – don’t only charge back third party costs – they charge fees for delivery services done in-house, for which they can dictate pricing for their in-house services at whatever rate they wish (this is often obfuscated in contractual language and often comes as a shock to producers who actually look into cost breakdowns come royalty time) . My personal feelings about how shady this practice is aside, it’s very common – and by selling off to distribs territory by territory, you may very quickly find yourself thousands – or tens of thousands – of dollars in the red before your content ever hits audience. Even if you’re not paying upfront by cutting checks, this means you may never see them from your distributors, either.

3.) The internet carries no flags.

For several years now, most “small” films that don’t end up getting distribution deals that carry P&A commitments & theatrical releasing end up being all-digital (for a lucky few, all-digital + cable VOD) releases. The big reason for this is that a digital roll-out is low cost/risk versus packaged media (which isn’t terribly expensive to do a bare-bones release, but doesn’t provide very good ROI any more) or theatrical (very expensive) and Television/VOD are tightly controlled pipelines in which there’s value in scarcity (and as such, tend to only license films with prior metrics of success, like having been programmed at top-tier film festivals or having had a multi-city theatrical run). If every film from every festival landed on cable VOD, the very obvious would happen: the average film would make just a fraction of what the average film released on cable VOD does today—and neither distributors or cable operators want to see this happen.

So…all-digital releasing it is—for the vast majority of films that are licensed by distributors, anyway. And distributing a film across the internet means playing by the rules of the internet – which means all territorial lines are imaginary.

The upshot of this fact is that most of the players that operate in the digital space – aggregators – have direct output deals with platforms of all shapes and sizes—and in virtually all regions where there’s enough interest in film and video for a delivery platform to be a viable business.

If your film has some regional or international appeal, a worldwide day-and-date release can be pretty helpful. DCL is currently working with filmmaker Gary King of HOW DO YOU WRITE A JOE SHERMAN SONG; when the film is launched this Spring, we’ll be able to launch in all English-language territories—U.S., U.K., Canada, Australia/New Zealand, etc. in which there’s a viable market for English-language independent film– on a single coordinated launch date. Since HOW DO YOU WRITE A JOE SHERMAN SONG played prominently (and won a top prize there) at the Raindance Film Festival and, with that, garnered interest in the U.K. – a day-and-date territory launch will be ideal.

Additionally, going with a worldwide launch with a single distributor means one encoding fee, one date by which promotion could be done worldwide to all known and potential fans and, not to be ignored, one pipeline by which revenue would flow back – which makes for much simpler and more transparent accounting. If you’re a producer who hasn’t yet had to deal taking in (and later doling out to whomever has percentages) funds from distributors – trust me, this last bit is ulcer-preventingly valuable in a way it’s hard to describe.

***

Now there are more than a few instances in which the above doesn’t make enough of a case to warrant a worldwide deal. I mentioned the most obvious examples in the beginning of this post–though there’s one more worth mention (since it’s also fairly common) is when your content or film features a subject, cast, other other element which a secondary territory would be particularly interested in a title – i.e. an “American” film by an “American” creative team that happens to have a Norwegian celebrity in the cast. In instances like this – where a secondary territory (in this case, Norway) might have significant interest and distributors might be motivated to shell out for a comprehensive release, you’d want to be really mindful about this and entertain the idea of isolating those territorial release rights from any worldwide distribution offers. This is also true of docs that focus on a foreign issue or subject.

Like all the posts I’ll be putting up here, the above isn’t meant to be taken as an instruction guide, but rather as a point which warrants serious consideration by content creators. Connecting content with audiences is rarely a black-and-white, right-or-wrong endeavor but rather more complex; each film, series, album or other piece of content will have it’s own opportunities and challenges – the way I see it, though, the more creators know (and think) about the underlying business of content distribution, the more empowered those creators are to make good decisions.