How does selling a film differ from selling other types of property, for example a house or an automobile? In the film world, making sales of a film usually does not mean conveying outright ownership of the film, but instead involves granting a license for use of the film under specific conditions and in a defined territory. The legal document used to grant a film license is called a licensing agreement. In this article, I am going to explain the important points to understand and remember in negotiating a film license deal.
In a film licensing deal there are two parties, the "seller" also known as the "Producer" or Licensor; and the "buyer" also known as the Licensee. The seller's goal is maximizing his revenues while controlling where, how and for how long the film (or television show or other media property) can be used by the buyer. The buyer's goal is typically to pay the lowest price possible, while retaining control over the film for the longest time possible. The resulting film licensing deal usually reflects a middle ground, which satisfies the needs of both the seller and the buyer.
Books have been written on the subject of the agreement itself, but for the purpose of this discussion, I am going to summarize the main features of a film licensing agreement. [If you want to learn more about how to draft a film license agreement, I recommend you read The Movie Business by Kelly Charles Crabb (Simon & Schuster 2005). Crabb's book reprints actual license agreements and explains in simple terms some of the more esoteric vocabulary used in such agreements.] Here are the main points you will need to negotiate:
Special provisions (these could include the right to renew the agreement at a pre-set price; first refusal rights for an additional territory; or whether the buyer has the right to re-edit the film).
Of all of these points, the one most mysterious and problematic for the neophyte producer is the film license fee. License fees vary by territory, and there are no set fees for any territory, only a range of prices that vary according to supply and demand. Some film markets, like MIP-TV and AFM, and some magazines, like Variety, publish price lists, but these are only guidelines. The best way to determine the right price for a film is to ask other producers what prices they received recently for a film of comparable quality and length to your own. Pick a price slightly higher than the price others received and then negotiate down. Remember that there are many buyers operating in each territory and try to play one off against the other. The following dialogue illustrates one method of negotiating:
Buyer X to Seller: I want your film for France DVD and I'll pay you $15,000.
Seller: Mr. Y was here this morning and offered me $20,000 for the same territory, but if you can pay more than $20,000 I would sell it to you.
The license term is important for the seller, because when it expires, the seller again has the right to sell his film in the same territory. Think of your film like an oil well; every time the license expires you can turn on the pumps again and generate more valuable oil. The fact that films can potentially be sold over and over in the same territory for many years explain why film libraries are so valuable. TV and DVD/home video deals have license terms ranging from two to seven years. Try to negotiate the shortest license term possible but don't make it a deal breaker.
The number of runs for a TV deal is what I would call a "throw away" deal point. It is difficult to control, particularly in a foreign country, the number of times a broadcaster or cable channel shows your film. You are better off appearing generous by granting "unlimited runs" than miserly by trying to control something that really doesn't affect your revenues.
Within the territory of television, there are a number of sub-territories, which are:
(a) pay TV; (b) free TV; (c) cable (d) satellite (e) pay per view (f) video on demand (g) hand-held devices, e.g. ipods and iphones; and (h) internet delivery protocols. Each of these sub-territories could be a separate sale. To maximize revenues try to limit each license granted to only one sub-category (for example, cable TV for the country of Italy).
DVD and home video deals are typically structured as an advance payment against a royalty for each unit sold or rented. Here again, it is difficult to police the terms of a royalty deal. Some DVD labels do pay royalties, but they are definitely in the minority. Assume that you will never see a dime of the royalties and concentrate your efforts instead on increasing the advance.
Here is another tip for generating extra revenues. Each time you sell your film in a territory that requires dubbed soundtracks (for example, in many Latin American countries); retain the right to receive a copy of the dubbed soundtrack. Once you have separate dubbed soundtracks in Spanish, French and German, your future sales in the countries where these languages are spoken will be easier and the buyers will gladly pay more for your film because they don't have to invest in creating a new soundtrack.
A final point to consider in negotiating the film license agreement is complying with the paperwork requirements imposed by each territory for importation of film and media properties. You will sometimes be asked to provide a "chain of title", which means the paper trail from the copyright holder to the seller, showing that the seller is authorized to sell the film. In case you are both the copyright holder and the seller, this can be easily proven by providing a copy of your film's copyright registration.
To sum up, in order to negotiate the best deal on a film license agreement, first divide the world into territories, and then again into sub-territories; and license each one for the shortest possible license term, while maximizing the revenues paid for each territory.
If this information has been helpful, please let me know. Your comments are welcome.
BRETT LAUTER is a foreign sales agent for motion pictures and television programs and a marketing consultant to filmmakers and production companies. In his twenty year career in the film business, Lauter has done business in sixty countries and worked with A-list producers such as Brad Krevoy ("Dumb and Dumber"), Bill Horberg ("Cold Mountain") and Clark Peterson ("Monster"). He offers his services as an advisor and consultant to first-time filmmakers as well as experienced producers who want to maximize the revenue potential of their productions while minimizing out of pocket costs. For more info, contact BRETT LAUTER at 310 663 2528 or email lauter@stanfordalumni.org.
©2007 Brett Lauter
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