By Steve Krone
The familiar annual rhythm of the major film festivals – Sundance in January, Berlin in February, Cannes in May and so on through Toronto in September – is well underway. And with Sundance and the Berlinale already in the rear-view, and SXSW right around the corner, it’s fair to say the 2019 sales environment looks to be very buoyant.
Although the single-film Sundance sale record was not eclipsed in 2019, the number of films that sold for eight figures was the highest ever, with numerous films racking up paydays in the $10-15 million range. Understandably, press reports out of Sundance tend to focus on these lofty (and once dreamlike) selling prices. It makes sense: the big numbers make great headlines, and the selling price is often the only deal information made publicly available.
But filmmakers – and in some situations, even film financiers – are not always best served by selling to the highest bidder. From a filmmaker perspective, the largest upfront payment, as great a thrill as it may be, does not necessarily translate into the best support for the film or most effectively accomplish the short- and long-term goals of the filmmakers. And even from a financier perspective, the biggest initial return does not always equate with maximizing the profitability of the film and the long-term interests of the financiers.
There are many other deal points that must be considered and carefully weighed. First, what type of distribution is being offered, and equally importantly, what level of support are the distributors promising in the chosen distribution channel or channels.
Is the distributor proposing a “conventional” initial theatrical release, such as might be expected from specialty theatrical distributors such as Fox Searchlight, Focus Features, Sony Pictures Classics, A24 and Roadside Attractions? Or is the buyer a streaming service such as Netflix, which may be offering no (or only a very limited) theatrical release and exclusive availability via their streaming service? Or is the proposed release a hybrid, offering both a substantial theatrical release and distribution via an early streaming release, as is common with Amazon Studios? For each distribution model, there’s a different mix of upfront payment and potential backend, with lots of variations available to a sophisticated negotiator, so the best selling price doesn’t always maximize ultimate revenue.
The level of distributor support for a film is also extremely important. If a theatrical release is involved, is the distributor committing to a minimum number of screens and markets and a minimum marketing spend? Even for exclusive streaming releases, the level of promotional support both in media and on platform can vary substantially. Whatever the distribution model, both the financiers and the filmmakers would like to know that their film is a high priority for the distributor and won’t get lost in the shuffle or suffer from lackluster promotion and advertising. (For example, is the title just another movie in the streaming service library, discoverable only via search, or is it heavily promoted on the home page and even supported by a media campaign, like Netflix’s Birdbox.) Indeed, this may be especially important to the filmmakers – and the director in particular – who may measure success at least as much based on how the film raises his or her profile as opposed to purely financial considerations.
This raises the obvious truth that the interests of filmmakers and financiers can diverge to a certain extent. Financiers may have a greater desire to recoup investment and protect the downside – after all, it’s their money on the line – whereas filmmakers may want to play for the upside as profit participants. As noted, the filmmakers may also be more focused on how the film release will affect their long-term career prospects than the shorter-term financial rewards.
Beyond the major deal points and strategic considerations covered in this alert – and just as importantly, everything not covered – it takes business savvy, industry knowledge and technical legal expertise to get these film sales deals optimally negotiated and properly documented. At MSK, we have the business, management, and executive-level operational experience in the industry which not only enables us to handle film distribution deals but also a wide variety of financing transactions such as production lending agreements, negative pick-up agreements, completion bond arrangements and interparty agreements. We also innovatively manage financial arrangements among producers, equity investors, distributors and other stakeholders. Most importantly, our broad experience and legal expertise enable us to represent both filmmakers and financiers, through every challenge and opportunity presented through the lifecycle of a film. Moreover, because we represent both financiers and filmmakers, we can often help balance their interests and make it easier for them to communicate and work together effectively. It’s our mission to be trusted strategic advisors to our clients, moving far beyond simply negotiating and drafting or reviewing documents.
In this environment, it’s more important than ever to think big picture and make sure you have expert advice.
About Steve Krone
Steve Krone is a member of MSK’s Motion Picture, Television & Music Transactions Department in the firm’s Los Angeles office. Prior to joining MSK in 2010, Steve was the President and COO at Village Roadshow Pictures Entertainment, having served as their Executive Vice President of Business & Legal Affairs prior to that role. He has decades of experience in the areas of development/production agreements, entertainment finance, sales and distribution agreements, and co-production and co-finance.