HOW DO FILM DISTRIBUTION COMPANIES WORK? (In the Entertainment industry.)

Film Distribution / Photo Credit: Pulse

HOW DO FILM DISTRIBUTION COMPANIES WORK? (In the Entertainment industry.)

 

Bruce Bisbey…please follow me at: https://dumbdogproductionsllc.blogspot.com or https://www.facebook.com/DumbDogProductionsLLC/ thank you.

How do film distribution companies work?

Distribution companies are made up of many departments or individuals which, in its most basic form, work in unison to acquire and deliver films to an audience. A distribution company can become involved at any point of the filmmaking process, from concept, draft screenplay, principal photography, post-production or the completed project. Pre-sales of the film generate funding to go toward production costs, and act as added security to other potential investors such as banks, private investors or co-producers - which is why producers seek involvement from a distributor in the initial stages of the project. 

A studio or independent investor decides to purchase rights to the film. People are brought together to make the film (screenwriter, producer, director, cast, crew). The film is completed and sent to the studio. ... The distribution company shows the movie (screening) to prospective buyers representing the theaters.

The Art of the Deal

It has been said that making a movie is not nearly as difficult as getting it distributed. Because of the enormous amount of cost in money and time involved in distributing a movie, a distributor must feel confident that they can make a sufficient return on their investment. Having the backing of a major studio or a well-known director or star can greatly improve the chances of securing a good distribution deal. Independent filmmakers often use film festivals as an opportunity to get the attention of distributors. Once a distributor is interested in a film, the two parties arrive at a distribution agreement based on one of two financial models:

Leasing

Profit sharing

In the leasing model, the distributor agrees to pay a fixed amount for the rights to distribute the film. If the distributor and the studio have a profit-sharing relationship, on the other hand, the distributor gets a percentage (typically anywhere from 10 to 50 percent) of the net profits made from the movie. Both models can be good or bad, depending on how well a movie does at the box office. The goal of both the studio and the distribution company is to predict which model will benefit them the most.

Most of the major studios have their own distribution companies. For example, Disney owns Buena Vista, a major distributor. The obvious advantages of this are that it is very simple to set up a distribution deal and the parent company doesn't have to share the profits with another company. The big problem is when an expensive movie is a flop -- there's no one else to share the costs. That's the main reason several studios have partnered on major movies in recent years. For example, "Star Wars: Episode One" was produced entirely by Lucasfilm but distributed by Fox.

The next big step occurs once the distribution company has rights to the film. Most distributors not only provide the movie to theaters, but obtain ancillary rights to distribute the movie on VHS, DVD, cable and network TV. Other rights can include soundtrack CDs, posters, games, toys and other merchandising.

When a distributor has leased a movie, they will try to determine the best strategy for opening the movie. Opening refers to the official debut of a movie. There are several factors to consider: 

• Studio
• Target Audience
• Star power
• Buzz
• Season 

Obviously, a movie that has everything -- major studio backing, big stars and a great story -- is probably going to open big and do very well. If it has big stars but doesn't appear to have legs (meaning that it will not stay popular for long), the distributor may opt to put the movie in as many theaters as possible during its first engagement. Fewer theaters will be interested in a movie with an unknown cast or poor buzz (unofficial information about the movie). Sometimes a movie has gotten good buzz, but isn't likely to have mass appeal because of the audience it is directed at. It might also be the wrong time of year for a particular type of movie. For example, a heartwarming Christmas story is not likely to do well opening on Memorial Day weekend.

Sourcing films or scripts that will connect with an audience is a subtle art, and as the industry changes so have the outlets and platforms on which viewers access their chosen content. Hollywood studios, re mostly concerned with the business of financing and distributing films, making studio productions (usually produced by their subsidiary companies) transition from script to screen relatively straightforward. For independent films, distributors such as Studio Canal, Lionsgate, eOne, Pathe and a host of smaller companies provide the best chance for an independent film to make it to the screen, and find a home entertainment outlet.

Distribution companies acquire films from the film markets which run throughout the year. The primary film markets are the AFM (American Film Market). European Film Market or EFM (February. Associated with the Berlinale - Berlin International Film Festival) and the Marché du Film (May. Associated with Cannes International Film Festival). Smaller markets operating in Europe focusing on low budget independent films and documentaries (such as CineMart in Rotterdam).

During the film markets, representatives from distribution companies will be negotiating with sales companies who represent the producers of the movie. They negotiate the films ‘rights’, including the right to release the film theatrically (cinema) and ancillary rights such as  DVD, VOD, TV, cable and satellite. On purchasing a film from the markets, a distributor will sign a Deal Memo on the day, which is followed up by a Long Form Agreement, committing the distribution company to the project. The Long Form Agreement will lay out the terms and conditions including the financial terms. The distributor can either enter into a profit share on the basis of a Minimum Guarantee (often shortened to the MG), where the producer will share in profits achieved over the MG. The other option is to enter a distribution agreement, where the distributor is paid a fixed fee to distribute the film, and the profits (after P and A costs) are given to the producer.

Distributors will research and decide the best time to release the movie in consultation with the sales team and the Marketing Department. A film’s run on the big screen is entirely dependent on how well it performs in the first few days of opening. Exhibitors react quickly to the data they are provided with on a daily and sometimes hourly basis, and a change in cinema schedule is rapidly achieved to create the best chance for profit. Exhibitors will utilize their screen space to get the most out of the films they're showing, whether that’s multiple showings over two or three screens, 3D projector capability or have the capacity for 4D viewings.

After the window to show the film theatrically has closed, distributors will enact their strategy for a home entertainment release; this can involve reworking the marketing strategy to appeal to other demographics. Home entertainment will encompass TV, DVD and BluRay, VOD services and satellite and cable outlets. Non-home entertainment outlets include cruise ships and in-flight entertainment services. Distributors can hold the rights to an independent film for 7 or more years dependent on the contract. During the time they hold the product they will prepare regular reports documenting the P and A spend and the earning or box office takings to be shared with producers, via the international sales companies who continue to represent the film.

Here's the path a film usually takes to get to your local theater: 

• Someone has an idea for a movie…
• They create an outline and use it to promote interest in the idea…
• A studio or independent investor decides to purchase rights to the film…
• People are brought together to make the film (screenwriter, producer, director, cast, crew)…
• The film is completed and sent to the studio…
• The studio makes a licensing agreement with a distribution company…
• The distribution company determines how many copies (prints) of the film to make…
• The distribution company shows the movie (screening) to prospective buyers representing the theaters…
• The buyers negotiate with the distribution company on which movies they wish to lease and the terms of the lease agreement…
• The prints are sent to the theaters a few days before the opening day…
• The theater shows the movie for a specified number of weeks (engagement)…
• You buy a ticket and watch the movie…
• At the end of the engagement, the theater sends the print back to the distribution company and makes payment on the lease agreement… 

The Need for Concessions

There are two ways for a theater to lease a movie:

Bidding

Percentage

Bidding requires that the theater agree to pay a fixed amount for the right to show the movie. For example, a theater might bid $100,000 for a four-week engagement of a new movie. During that time, it could make $125,000 for a profit of $25,000. Or it might take in only $75,000, which means the theater has a loss of $25,000. Few distribution companies use bidding anymore. Most agreements are for a percentage of the box office (ticket sales).

In this sort of deal, the distributor and the theater agree to several terms: 

• The theater negotiates the amount of the house allowance, or nut, with the distributor. This is a set figure to cover basic expenses each week…
• The percentage split for the net box office is set. This is the amount of box office left after the deduction of the house allowance…
• The percentage split for the gross box office is set…
• The length of engagement is set (typically four weeks)… 

The distributor will get the vast majority of the money made by the movie. The agreement gives the distributor the agreed-upon percentage of the net box office or gross box office, whichever is greater. The way this works is amazing!

Consider this example. Theater A is negotiating with Distributor B over a new movie. The theater has figured that expenses, the nut, are about $4,500 per week. The net percentage to go to the distributor is set at 95 percent for the first two weeks, 90 percent for week three and 85 percent for the final week. The gross percentage to go to the distributor is set at 70 percent for the first two weeks, 60 percent for week three and 50 percent for the final week.

You can see that during weeks one, two and three, the gross percentage is higher. The net percentage is higher for week four. So the distributor would take gross percentage on one through three then net for week four. The theater breaks even the first week, loses money the second and makes a profit on weeks three and four.

The movie itself is considered a loss leader by the theater owner: It is meant to get people into the theater. The theater makes its money selling refreshments to the movie audience. That's why concessions are so expensive -- without the profits generated by things like popcorn and soda, most theaters could not afford to stay in business.

At the end of the negotiated engagement, the theater pays the distributor its share of the box office earnings and returns the print. If a movie is very popular and can continue to draw a steady crowd, the theater may renegotiate to extend the lease agreement. Any time you see the phrase "Held over," you know that the theater has extended the movie lease.

While first run movies that have just been released are loss leaders, movies that have been out for a while can be profitable for the theaters that show them. Second run theaters often get very attractive leasing terms from the distributor. These theaters are facing increasing competition though, as first run theaters continue to show more movies past the traditional four to six week time frame.

Sources, References & Credits: Google, Wikipedia, Wikihow, WikiBooks, Pinterest, IMDB, Linked In, Indie Wire, Film Making Stuff, Hiive, Film Daily, New York Film Academy, The Balance, Careers Hub, The Numbers, Film Maker, TV Guide Magazine, Blurb, Media Match, Quora, Creative Skill Set, Chron, Investopedia, Variety, No Film School, How Stuff Works, WGA, BBC, Daily Variety, The Film Agency, Best Sample Resume, How Stuff Works, Bright Hub, Career Trend, Producer's Code of Credits, Truity, Production Hub, Producers Guild of America, Film Connection, Variety, Wolf Crow, Get In Media, Production Beast, Sony Pictures, Warner Bros, UCAS, Frankenbite, Realty 101, Liberty Me, Careers Hub, Sokanu, Raindance, Film Connection, My Job Search, Prospects,

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION IS PROVIDED "AS IS" AND BRUCE BISBEY MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES, INCLUDING WARRANTIES OF PERFORMANCE, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE, REGARDING THIS INFORMATION. BRUCE BISBEY DOES NOT GUARANTEE THE COMPLETENESS, ACCURACY OR TIMELINESS OF THIS INFORMATION. YOUR USE OF THIS INFORMATION IS AT YOUR OWN RISK. YOU ASSUME FULL RESPONSIBILITY AND RISK OF LOSS RESULTING FROM THE USE OF THIS INFORMATION. BRUCE BISBEY WILL NOT BE LIABLE FOR ANY DIRECT, SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR ANY OTHER DAMAGES WHATSOEVER, WHETHER IN AN ACTION BASED UPON A STATUTE, CONTRACT, TORT (INCLUDING, WITHOUT LIMITATION NEGLIGENCE) OR OTHERWISE, RELATING TO THE USE OF THIS INFORMATION.

Film Distribution / Photo Credit: Pulse