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OCT
12
2007

Why I Turned Down a $20,000 Distribution Deal with Universal

by Traveling Matt
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A few months ago, my friend The Finn told me to send him a DVD of our indie movie, Moving. It turns out he had a friend who was starting a new distribution company, a subsidiary of Universal. They offered us $20,000, 20% of net profits, and we would have had access to the full Universal music library for licensing if we wanted to put in new music. At my insistence, we turned them down.

To be precise, I proposed revisions to the contract they wanted us to sign–and they flatly refused to consider them. So we didn't sign. Here's why it was the right thing to do.

How Much Do You Want Us to Spend?

The $20,000 they offered us was more than the budget of the movie. Just by taking the deal, we would at last have made our money back. Right?

Wrong.

We would have had to deliver the movie to them on their terms and cover our asses because the contract they gave us put all the legal liability on us. In the film industry, delivery is a magic word which means a lot more than sending them a DVD. We were responsible for obtaining an MPAA rating ($2000), checking the movie for all clearances, paying for those clearances, re-negotiating music licenses, paying for those new licenses, and hiring lawyers to make sure everything was wrapped up in a way which protected us from lawsuits. Our movie has tons of brands in it–in the background, in the foreground, everywhere. One of the lead characters drinks a Yoo-Hoo in closeup; there's an entire joke about Wheat Thins; there's a big spilled bag of branded condoms for a visual gag; we have scenes in convenience stores; all the crap that big productions have to attend to we had to ignore because we were shooting guerrilla style. You know all those invented and generic brands ("Milk," "Beer") you see in movies? That's to protect them from corporate lawyers. What could we possibly do about it? What if the lawyer we couldn't afford told us we had to remove a brand? Would we just digitally paint them out? That's incredibly expensive. If we tried to do it ourselves, we'd have to buy new computer equipment, re-cut and re-render the movie using the old hard drives which were away in storage and used a weird codec we didn't have anymore; buy or rent video monitors, so on and so forth. If we couldn't secure a music license, we'd have to re-do the audio track, requiring a similar effort–it was all quite a lot of possibly debilitating expenses that we'd have to put up the money for, since we wouldn't get the check until delivery, and if they didn't like what we gave them they could say we hadn't done our job, void the contract, and we wouldn't get a check!

So we made a counter-offer. Instead of paying us $20,000, they'd just assume all the delivery costs. They accepted. We were off to a good start.

Then I read the contract.

I Don't Even Have Children; Why Do You Get Them?

The contract opens with:

… Seller agrees to forever sell and convey the motion picture “MOVING” (henceforth “MOVING” or the “Picture”) and related property as set forth below.

Important point: They get the movie forever. Not for 50 years, not 200, but for all time. Not that this is atypical, but it reminds you to make sure you're selling it to the right people.

What They Were Buying

They defined what they were buying as (I know this is long, so skim it):

Moving Property includes without limitation the Picture, all parts of related audiovisual works, concepts, processes, characters, original works of authorship, programs, software, websites, documentation, service provider contractual relationships, all materials that directly or indirectly relate to the Picture or that were conceived, devised, invented, developed, or reduced to practice or tangible medium or electronic form by Seller, under his direction, or by others somehow in connection to the Picture. Without limitation these include: (i) proprietary indicia, brand names, copyrights, trademarks and trade names, symbols, logos, merchandise; (ii) the right to absolute, exclusive and unqualified control of the distribution, exhibition, exploitation, editing and disposition and receipt of proceeds from the Picture including all rights of performance, broadcast and exhibition by any art or method now known or hereinafter devised, specifically including without limitation radio broadcasting, theatrical and non-theatrical exhibition, television exhibition (live or not, free, pay or syndication), home video (cassette, disc or otherwise), merchandising rights, music publishing rights, soundtrack, literary publishing, and permitting commercial messages to be exhibited during or embedded in, or after the exhibition of the Picture, all and each in any language or version including dubbed, subtitled and narrated versions or sub-versions, whether such manifestations are stand-alone or part of a compilation of previously unrelated motion picture work; (iii) all rights generally known as the “moral rights of authors” in the musical or literary or audiovisual property; (iv) use and performance of the music, lyrics and compositions contained in the Picture and/or the soundtrack; (vi) making changes, alterations, cuts, additions, interpolations, deletions and eliminations into and from the Picture and trailers, including final cutting authority on the Picture; (vii) use of Seller’s name and trademark and/or the name and trademark of any of licensee's on the prints of the Picture, and in trailers, and in advertising and publicity, use; (viii) change or alteration of title or titles by which the Picture is or may be known or identified; (ix) all rights to conclusively define and/or redefine credits received on the Picture; (x) remake rights, additional motion picture rights containing part of the acquired content, and related or sequel motion picture rights; (xi) all right to license and authorize others to broadcast, in any language and as to any parts or portions of the Picture any literary or dramatic material included in the Picture or upon which the Picture was based alone or in conjunction with other literary, dramatic or musical material; and (xii) the use, license and authorization of others to use the name, physical likeness and voice (and any simulation or reproduction of any thereof) of any party rendering services in connection with the Moving Property.

Important point: They get EVERYTHING. Not just the finished film. Everything that exists–or could exist, without qualification.

What We Got in Return

Here is an excerpt from their definition of Net Profits, of which we were to get a percentage:

Net Profits is that amount equal to the excess, if any, of the Picture’s gross receipts actually earned and received by (BUYER) strictly during the first three years after commercial release over the aggregate of the following which shall be deducted in listed order: … [long list of deducted costs] …If part of the Moving Property is incorporated with other content as an integrated composite work thus generating revenue actually earned and received by (BUYER) in part from the Moving Property, then (BUYER) shall deduct from such revenue such sums and adjustments as (BUYER) finds reasonable in it’s sole discretion in order to arrive at gross receipts for all definitional purpose of this paragraph. Net Profits shall not include any merchandising and/or music and/or sound track income.

What's Wrong with this Motion Picture

Here are just a few of the many things wrong with this:

  1. They get everything that ever had to do with the movie. They get the website we put years of work into, the music, the fake brands we invented to populate the movie with props, the posters, the thousands of dollars worth of graphic design materials we did ourselves, all derivitive rights, everything. We would not be allowed to keep or use any of it ever again without permission.
  2. If they liked the story and characters but not the movie, they can buy the movie, shelve it, then make it again from scratch starring Jim Carrey and Steve Carrell, make 800 million dollars, and we get nothing.
  3. They can shelve the movie and hire someone to make a graphic novel out of it and we get nothing.
  4. They can rename the movie "The Great Abortion-Clinic and Explosive Diarrhea Comedy Caper" and we don't have any say in it.
  5. They can add or remove names from the credits as they please.
  6. They can simply take our footage, even the dozens of hours of unused tape, and create an entirely new movie out of it and sell it under our name, their name, or anyone else's name they please.
  7. They can make a killing off of merchandising and the soundtrack (one of the movie's strongest features) and we get nothing.
  8. They can make a sequel and we get nothing.
  9. They can turn it into a TV show and we get nothing.
  10. They can shelve it and do nothing with it forever.
  11. Worst of all, because the contract specifies we only get paid for the first three years, they can wait three years, release it exactly as is, make a killing, and we get nothing.
  12. They spelled "its" as "it's."

One of the things that filmmakers eventually learn about (and I'm just learning about myself) in negotiating distribution and sale contracts is that there are several windows which a movie passes through, and each one can be (and often is) negotiated separately. The theatrical release is the first window for a major motion picture, followed by pay-per-view, DVD, pay-television, and network television, usually in a rough approximation of that order so that each exhibition method gets its own crack at the audience and its own chance to make money. Foreign rights apparently have their own similar hierarchy, though I don't understand it except that I know foreign rights are often negotiated separately from everything above. In other words, a contract which addresses all the exhibition opportunities is going to be LONG. A short contract is usually bad.

Ours was very short.

It left a lot open to interpretation, lumped lots of the individual rights and clauses into vaguely all-inclusive "we get everything" statements, with language like "and all other," "without exception," and "including but not limited to."

Nuh-uh.

A contract which protects you–especially when you are the weaker or poorer party–says exactly what it's limited to, and exactly what the exceptions are.

So when they, in a single line, claimed the foreign rights, pay-per-view rights, rights to almost every other kind of exhibition and sale, they were bundling a lot of extremely valuable and important individual negotiable elements into one sneaky sentence. I mean, come on: "broadcast and exhibition by any art or method now known or hereinafter devised"? Give me a break. Especially with Internet distribution looming, and the possibility of other new exhibition models (mobile phones, media players, etc.) it's madness to accept such a fat grab uncontested. At the very least, there should be specifics about the well-recognized exhibition windows like pay-per-view and cable. After all, these windows are spread out over a long time. It took six years for "Fellowship of the Ring" to show up on network television. If our movie by some miracle ended up on Comedy Central, by that time our contract for net profits would have expired!

Then–and this is the doozy–is the ultimate "stomp the new guy" clause: "If part of the Moving Property is incorporated with other content as an integrated composite work…then (BUYER) shall deduct from such revenue such sums and adjustments as (BUYER) finds reasonable in it’s sole discretion in order to arrive at gross receipts for all definitional purpose of this paragraph."

This is what's called cross-collateralization. It means that if they buy ten comedy movies, release them all in a DVD series called "Great Undiscovered Indie Comedies," then our movie makes a million dollars but all the other movies bomb (quit giggling, this is just an illustration), we could very well make no money at all because they consider the production and marketing costs of all nine others as part of our costs. Isn't that ridiculous? That's cross-collateralization, and it's a nasty way that content owners protect themselves from bombs, by passing on the losses to the content authors. The content author who has done best and deserves the most reward is instead punished the most. No fucking way am I going to allow this nonsense in my contract without a fight.

So the original "Net Profits" clause was, again:

Net Profits is that amount equal to the excess, if any, of the Picture’s gross receipts actually earned and received by (BUYER) strictly during the first three years after commercial release over the aggregate of the following which shall be deducted in listed order: … [long list of deducted costs] …If part of the Moving Property is incorporated with other content as an integrated composite work thus generating revenue actually earned and received by (BUYER) in part from the Moving Property, then (BUYER) shall deduct from such revenue such sums and adjustments as (BUYER) finds reasonable in it’s sole discretion in order to arrive at gross receipts for all definitional purpose of this paragraph. Net Profits shall not include any merchandising and/or music and/or sound track income.

And I changed this to (emphasis added):

Net Profits is that amount equal to the excess, if any, of the Picture’s gross theatrical receipts actually earned and received by (BUYER) strictly during the first three years following commercial theatrical release; gross receipts actually earned and received by (BUYER) from broadcast television, cable television, pay-per-view, and video-on-demand releases and licensing strictly during the first 5 years of each such market respectively, each release being independently measured and accounted from one another; gross DVD/HD-DVD/Blu-Ray receipts actually earned and received by DMA17 strictly during the first ten years following commercial release in each such format respectively, each release being independently measured and accounted from one another; and the gross receipts from digital-delivery via Internet and/or online exhibition, release, or sales actually earned and received by (BUYER) strictly during the first fifteen years following commercial release in such formats; over the aggregate of the following which shall be deducted in listed order:… [long list of deducted costs] …If part of the Moving Property is incorporated with other content as an integrated composite work thus generating revenue actually earned and received by (BUYER) in part from the Moving Property, then (BUYER) shall only and specifically deduct from such revenue such sums and adjustments as apply to the Moving Property. Should the Moving Property be bundled with or sold in conjunction with other Pictures and properties, made part of a compilation or a series, whether boxed and sold as a set or in separate, none of the expenses or losses incurred by properties other than those specific to the Moving Property shall be in any manner or accounting charged against the Moving Property for the purposes of determining Net Profits thereof. (BUYER) finds reasonable in the exercise of its good faith business judgment in order to arrive at gross receipts for all definitional purpose of this paragraph. Net Profits also shall include any merchandising and/or music and/or sound track income.

Notice how ours is longer.

We eliminated the "any art or method now known or hereinafter devised" and specified the arts and methods, and the time periods for each window. Doesn't this seem fair now? We also eliminated cross-collateralization. We also specified "finds reasonable in the exercise of its good faith business judgment" which beats the shit out of "finds reasonable in it's sole discretion." Lastly, we restored merchandising and soundtrack sales.

Now that last one, in particular, is a little aggressive, but this was a draft contract, a negotiation, and this was our judgment of what was fair.

Then Just Pray Nobody Sues

In this contract, we were liable for everything. If the distributor re-cut our movie and violated somebody else's trademark or copyright, and got sued, we were liable. They had stuff like:

Upon notice from (BUYER) of any such claim, demand or action being advanced or commenced, Seller agrees to adjust, settle or defend the same at the sole cost of Seller.

So no matter what happened, we had to pay for it. If we were accused of some bullshit violation, "whether or not groundless, of any kind or nature whatsoever," we had to pay for the defense. If a music publishing house decided to sue us, claiming we'd violated the terms of a licensing agreement, it wouldn't matter whether we'd done it or not; we would be responsible for all legal costs. The contract was also full of crap like:

To the extent that a dispute later arises between the Parties, and damages are later proven by Seller in relation to the Moving Property, recovery is expressly limited to Twenty Thousand ($20,000) USD inclusive of all claims for costs, fees, attorney fees, losses, damages, whether arising at law or equity.

Even if they deliberately and maliciously screwed us over, doing (let's say) $250,000 of damages, they would only be liable for $20,000!

So What?

One of the advantages of affiliating yourself with a distributor and/or a studio–one which helps to offset the disadvantage of no longer owning your own work, or losing some creative freedom–is that the risks are pooled and minimized. First of all, a plaintiff is less likely to even initiate legal action against a defendant they know is better equipped to defeat the claim. (This is offset to some extent by the increased incentive to sue a larger company due to the larger assets one can win judgment against, but I think the disincentive outweighs the incentive.) Second of all, if legal claims are brought, the big entertainment company has got the resources and expertise to fight it off with far less time and effort than an individual attempting the same feat. In other words, they enjoy the benefit of efficiency. If no claims are ever brought against us and our movie, then we (and other artists) are still paying (out of our net costs) for the maintenance of their legal department and their defense of other artists, but the reassurance we gain makes up for it. It's much like health insurance, where the healthy people pay for the sick people; you don't know whether or when you might move from healthy to sick (like from unsued to sued) and suddenly have your investment in insurance made worthwhile.

But we didn't receive this protection! It was like paying for health insurance and having your coverage denied when you actually got a disease–and we all know, that never happens in health insurance and our country wouldn't stand for it.

So we corrected some of that crap. For example, we added:

Any lawsuits resulting from the distribution, sale of, rental of, or exhibition of the property, and not resulting from breaches of this Agreement on the part of the Seller, will be the full responsibility of (BUYER), both legally and financially.

And, if you can believe it, they closed the entire contract with this doozy:

In addition to all other remedies available, (BUYER) is entitled to equitable relief including temporary and permanent injunctive relief, and such relief may be granted without proof of actual damages and without posting of any bond.

What??? These guys have been huffing too much tanning lotion. They get money for damages even if damages haven't been proven? Fuck off, Universal. I scratched that line entirely.

They Fuck You at the Drive-In

So we cleaned the contract up a lot. We didn't want them to be able to even say they could take all our lovingly-made props and memorabilia, or documentary footage, or snapshots, or so forth, so I added:

Moving Property may not be construed to include any equipment used in the production of the Picture, any properties or other tangible materials utilized in production, including but not limited to costumes, props, set pieces, scripts in printed or electronic form, and memorabilia. Any and all still photography and non-principal video photography (herein defined as that video photography which was not by intention or fact included in the Picture, including but not limited to documentary footage, behind-the-scenes/making-of footage, and personal recordings) remains the property of the photographer and the public or private display or dispensation by the owners cannot be construed to be a violation of rights described within this contract. The authors of the screenplay shall maintain ownership and copyright of that work, and rights to the existing website (“www.whatismoving.com”) so long as website content cannot be reasonably judged to undermine or violate any of the (BUYER) intellectual property rights or ownerships described above.

The contract said nothing about when or how we were to get our percentage. Aspiring filmmakers, this is important! They could have delivered it ten years later and not been in violation of contract. So I added it:

Such entitled receipts are to be remitted either quarterly (measured from the first day of each calendar year) or upon such schedule as Seller and (BUYER) make written and enforceable agreement which supersedes the schedule specified herein.

They also coulda racked up $60,000 in hookers and plastic surgery and charged them to us. So I added:

(BUYER) warrants and represents that all Costs of Production, overhead charges, distribution fees, and all other expenses (BUYER) claims to incur and practices generating such expenses must and shall be consistent with reasonable levels and practices commonly prevailing in the motion picture industry in the United States.

The "Don't Be Evil" Clause

My favorite addition was this one:

Reversion of Rights: While (BUYER) and Seller agree that no guarantee exists of commercial success, if commercial exploitation of the Moving Property via theatrical, DVD/HD-DVD/Blu-Ray, or national or international television licensing and broadcast can not be reasonably judged to have commenced within two years of this Agreement’s enforceable enactment, all rights and ownerships described herein to the Moving Property shall revert to the Seller.

That's right, bitches. If you put our movie on a shelf and do nothing with it, then we get it back.

I love contract law!

And Lastly

Indie filmmakers, be sure to put this in your contracts:

Books and Records Checking: The Seller shall enjoy uninhibited and unencumbered rights to audit and inspect all books and records relating to the Moving Property and this Agreement, verify charged expenses, payments, records of gross receipts, Net Profits, and the language of such agreements as influence or determine any calculation of expenses, receipts, and profits as relate to the Moving Property and this Agreement, including but not limited to licensing, sales, and distribution agreements. The Seller may (but is not required to) agree to a third party designated by (BUYER) or designate unilaterally a third party to manage such accounting and inspection duties, provided such party is bound by any and all requirements of confidentiality that may apply to the Seller. The right to such auditing and inspection, whether exercised or not, is granted semi-annually, or more (but not less) frequently at the sole discretion of (BUYER), or according to separate written and enforceable agreement which supersedes the schedule specified herein.

It wasn't in ours, and you'd better believe I added it. Hope this helps somebody.

We Fought the Flaws and the Flaws Won

So we submitted our revised contract, and they figured we were way too much trouble. They wrote back and without so much as a revision or good-faith response, cut off the discussion. I guess it was the financial equivalent of the casting couch: If they couldn't screw us, they didn't want us.

That's why I turned down a distribution deal with Universal. That's also why I feel good about it.

Link Summary

  • http://www.whatismoving.com
  • THE CRITICS HAVE SPOKEN:

    1
    Piano Catherine Says:
    Ah, they cut off discussions now, but when they realize they want it they'll be back (or somebody else will).
    2
    Angela Says:
    What a wild adventure! I still haven't seen it (I need to remedy that, but I keep forgetting to remedy it), but from everything I've read and heard it's just fantastic and hysterical. Fantastic and hysterical movies are rare nowadays, and I have faith that it is going to take you and Jonathan places. Hell, YOU two may be the ones making a Steve Carell and Jim Carrey blockbuster comedy someday because of it. :) You were definitely smart the way you handled this, and I'm glad you didn't get stuck in a bad situation because of the exciting prospect.
    3
    Traveling Matt Says:
    Screw filmmaking; I should totally go to law school. P.C. - thanks for the chipper upper, but I don't believe they were so much enamored of our movie as they were with the idea of cheaply picking up overlooked movies to build up their library. Like quickie real-estate investing. Could be wrong, but that's the feeling I got.
    4
    Piano Catherine Says:
    I was just speaking from my own experience with a very similar situation. I turned down a contract for similar reasons that then materialized a few years down the line. Not anything as big as Universal, though, so maybe you're right.
    5
    Eric Says:
    Eric... The term is used colloquially for any kind of Linkback. Six Apart started a working group in February 2006 to improve the Trackback...

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