The moviegoer’s ticket price flows a long way before a producer sees his share. The initial flow of theatrical revenues of a motion picture comes from the box office receipts of a theater or exhibitor. The exhibitor takes its "house nut," or its theater expenses, along with its exhibitor fee and passes the remainder of the box office receipts, or "film rentals," to the distributor. These rentals are referred to as the "gross receipts" in a distribution contract and are used to determine the revenue shares of the producer and distributor in a percentage fee structure. The distributor then takes its fees and reimburses its expenses according to the contract and leaves the producer with the remainder of the rentals.

Motion Picture Distribution Deals

Flat Fees. Distribution deals can be set up as a flat fee or percentage agreement deal. In a flat fee sale, a distributor will pay a specific sum of money for all rights granted to the distributor in the territory. Flat fees are used in smaller countries or territories where tracking of revenues or collection of fees would be difficult in the territory. Flat fees can range from two thousand dollars for low budget theatrically less successful movies, to fifty thousand dollars for a more successful film if the territory is larger.

Percentage Fees. On the other hand, in prime markets like Japan or England, distribution agreements usually provide for royalty payments and are based on a percentage of revenues in addition to a minimum guarantee. The delivery of an "acceptable" film triggers the minimum guarantee and what is "acceptable" is a hotly contested issue if the term is not clearly defined in the contract. The distributor fee in percentage agreements range between twenty-five percent to nearly twice that percentage of gross revenues for a distributor who directly distributes in the foreign market. If a subdistributor is used, the distributor may charge an additional percentage override fee for the subdistributor’s fees or the distributor may pay the subdistributor out of its fees.

Percentage fees can be arranged in several ways, from gross deals, where powerful producers get a fixed percentage of all revenues, to net deals, where the distributor recoups its share first before the producer gets anything. In the first dollar gross deal, the producer and other gross participants get a stated percentage of gross revenues from the distributor. The producer gets no advance and must be very confident the movie will succeed. As a result, this kind of deal is very rare.

A common deal is the 70/30 major deal that allows the distributor to deduct his expense off the top before the revenues are split 70 percent to the distributor and 30 percent to the producer. A variation of the major deal allows for a sliding scale, for example, the distributor gets 70 percent of the first million, 60 percent of the second million, and 50 percent of the revenues thereafter. More widely used is the net deal that allows for the distributor to deduct his distribution fees off the top then recoup all expenses before sharing the remainder of the revenues with the producer. The net deal delays the point at which the producer sees any revenue, although it potentially provides a producer with a high return on a very successful film.

Distribution fee percentages vary from studio to independent distributors and between territories. Studio distributors charge about thirty percent in the United States and Canada and slightly higher rates in Europe and other territories. Independent distributors usually charge a twenty percent fee in the United States and Canada, and a slightly lower percentage for all other territories. Thus, an independent producer may be better off with an independent distributor because of lower distribution fees. Moreover, independent distributors with distribution rights in one territory will try very hard to sell the film regardless of how the film did in other territories.

On the other hand, studio distributors that usually own all foreign rights to a movie may write-off a film in other territories if it did not do well in one territory. Even worse, the studio could put its efforts in distributing studio films rather than independent films. With that said, studio distribution does have its advantages due to the studios’ prominence abroad. Studio distributors have the financial power and influence over foreign exhibitors due to the exhibitor’s need for Hollywood blockbusters. With the wide variation in distribution methods and fees in foreign distribution, it is crucial for the independent producer to assess the benefits and costs of using an independent versus a studio distributor to exploit his or her film abroad.

Author acknowledges the contributions of Donald C. Farber, Entertainment Industry Contracts: Negotiating and Drafting Guide; John W. Cones, The Feature Film Distribution Deal: A Critical Analysis of the Single Most Important Film Industry Agreement, David Nochimson, Contingent Compensation for Theatrical Motion Pictures, Entertainment, Arts, and Sports Law.