There are a number of issues relating to distribution that arise in split rights deals for motion pictures. Whether it’s an acquisition, co-production or co-financing arrangement, one of the more important deal points is what kind of agreements a distributor should make vis-à-vis the sharing with or granting access to another party of picture materials. These can range from physical materials such as trailer materials and TV, airline or other versions of the picture, to marketing materials such as artwork, value-added materials and electronic press kits. If you’re a distributor and are contemplating sharing materials you’ve created (or those created on your behalf) with a counterparty, here are some key considerations when negotiating terms that will apply to this arrangement.
What Materials Will You Share? The first thing to determine is what materials you’ll be sharing with the counterparty. Sometimes it’s physical picture materials, but more often this will take the form of providing a counterparty with access to marketing materials or items relating to various versions of the picture – language tracks, closed captions, or dubbed/subtitled versions. It’s important for the parties to be clear what items will be shared under your arrangement.
Who Can Use the Materials and How? Your arrangement should also specify whether you want to limit access of your materials to the counterparty only, or if the counterparty’s licensees are permitted to have access as well. You will also want to describe the ways in which those parties can use the materials – for example, you can specify the kinds of advertising formats in which the artwork can be used: print ads, trailers, television/radio advertising, etc. In any event, your agreement should include qualifying language indicating that any such access or use does not interfere with your needs as owner of the materials.
What Costs Are Involved? Once you know what materials you’re going to make available, you must decide if there will be a cost to the counterparty for obtaining access to your materials. If the counterparty in turn has items that you would like to use, you can agree that you’ll each have “free” access to the other’s materials. If not, then you’ll need to determine the financial terms for such access. Even if the arrangement provides for so-called “free” access, a counterparty will typically be required to pay the costs of duplication, reproduction, shipping, delivery and insurance, but you can otherwise get quite creative when setting an access fee:
- You can charge a percentage of the creation costs of such materials (e.g., split the costs 50/50). You can subject this amount to a cap, possibly excluding certain costs from the cap such as music licensing costs or creation costs of international versions of marketing materials. The percentage you set can also be based on how many territories in which the counterparty will be using the materials (e.g., 25% for use in one territory and 50% for use in two or more territories).
- You can have a fixed fee for access to all materials or create a “shopping list” with a specific fee for each item if accessed.
- You can also grant “free” access, either at the outset or at a particular point in time (e.g., once you’ve achieved recoupment of all your distribution expenses, or after the end of your distribution term).
- You can agree to negotiate the access fee in good faith at a later point in time.
- If the picture is one you’re acquiring from a counterparty, you can place conditions on granting access to your materials, such as having access be subject to the licensor effecting timely delivery.
Ultimately, this a business decision and may depend on other financial terms of the deal.
“What’s the Clearance, Clarence?” Before sharing your materials with a counterparty, you should be aware of the extent to which you’ve cleared such materials for your own use: in all media or for specific purposes, worldwide or for limited territories, and in perpetuity or for a set period of time (e.g., during your own distribution term). If materials aren’t cleared for use in all media worldwide in perpetuity, your agreement should state as such – i.e., that you don’t guarantee any such materials are cleared for certain uses, or outside your territory, or beyond your distribution term. The counterparty should likewise agree that prior to using any materials, it will clear them for its own use (including securing any required licenses or releases) and cover all clearance and reuse costs.
If you’re sharing dubbed materials, pay special attention to the credits accorded to any dubbing actors used in such versions. Your agreement should note that the dubbed versions are not cleared for the counterparty’s use and that there’s no guarantee the credits accorded to any dubbing actors in materials you’ve provided are complete, accurate or sufficient.
Protecting Yourself When Something Goes Wrong. Your agreement should state clearly that you make no representation or warranty as to the counterparty’s use of the accessed materials. Additionally, use indemnification language to your advantage: the counterparty should indemnify you for any claims resulting from its use of the materials, regardless of whether materials are cleared for the counterparty’s use. The indemnity should not be limited to instances where the counterparty modifies the materials or breaches its obligations under the agreement. On the flipside, the counterparty should acknowledge and agree that you will not indemnify the counterparty in connection with its use of the materials.
The extent to which distributor share their materials with third parties and the provisions setting forth those understandings can vary greatly. A mutually beneficial arrangement is possible and ultimately, the relationship between the parties, with respect to both their current agreement as well as the parties’ desire to pursue future deals with each other, will determine the specifics.