Understanding Agreements in Film Production, Financing, & Distribution

An average independent film project deals with a multitude of contracts. Agreements are entered into by the production during all the stages of film’s “life cycle”.

In this article we will mention a couple of the most important agreements that the producer should take into consideration during development, production, and distribution.

Also, we will look at financing, residual obligations, and agreements which are fundamental to make sure that the film is completed successfully and that revenues generated by distribution, are allocated and disbursed correctly.

Development

Option Agreement

An option agreement is “an agreement granting an option (to a production company) to purchase the rights in an existing original screenplay for a feature film. The option is for an initial period, which the potential purchaser can extend by a further set period. The rights-owner receives a one-off option fee which is offset against any income received after the exercise of the option, plus (if the option is extended) an extension fee which cannot be offset in this way. The agreement contains provisions giving the owner a share of net profits from any film that is made on the basis of the screenplay, including any remake or sequel.”

Development Agreement

A development agreement is an agreement between two or more production companies or individual filmmakers in which they agree to work together to develop, finance, produce and distribute a feature film (or another audiovisual project). In the development agreement the parties generally agree to put together a budget, a finance plan and a global line-out for development, production, and distribution of the film, and copyright is described.

Production

Production Agreement

The production agreement sets forth the term between two or more producers, individuals, or companies, who together agree to produce a feature film based on an existing screenplay. The production agreement may include financing elements.

Co-Production Agreement

This agreement is a specific format of the production agreement. Often, the co-production agreement refers to a project being co-produced between two or more production companies from different countries under an official co-production treaty or several treaties. The co-production agreement points out the ownership between the co-producers, and how the film project is intended to be financed.

Film Financing

Finance Agreement

A finance agreement in the film industry is an agreement between the production company and a financier, in which the financier commits to financing part of or the whole production costs of the film. Furthermore, the finance agreement sets out the terms and conditions to which the financing of the film is subject, such as the conditions precedent (which can be the attachment of a certain actor or director, or a certain budget range, or commitment of other financing sources).

Equity Investment Agreement

An equity investment agreement occurs when investors agree to give money to a company in exchange for the possibility of a future return on their investment. In the film industry, the equity investment agreement points out to which conditions the investment is subject, how the equity investor will recoup its investment and premium, and what share of net profits the investor will receive if the film is financially successful.

Loan Agreement

A loan agreement is an agreement between the production company, as borrower, and a lender, pursuant to which the lender provides the production company with a loan to cover (part of) the production costs of the film partially or fully. The lender can be a bank or a so-called senior lender. Typically, the loan agreement will indicate that the lender will recoup its loan, together with interest and any fees and costs, in first position from the film’s revenues generated from international distribution.

Security Agreement

A security agreement refers to a document that provides a lender a security interest in a specified asset or property that is pledged as collateral. Terms and conditions are determined at the time the security agreement is drafted. Security agreements are a necessary part of the business world, as lenders would never extend credit to certain companies without them. If the borrower defaults, the pledged collateral can be seized by the lender and sold. In the film industry, the collateral can include the screenplay, the distribution rights of the film, the distribution agreements, and anything else in connection of the film that represents value.

Sales and Distribution

Sales Agency Agreement

If the film is sold by an international sales agent, producer and sales agent enter into a sales agency agreement. This agreement describes the territory and the term, for which the sales agent has the right to sell the film. Furthermore, its details the commission and expenses payable to the sales agent. Often, a sales agent is engaged to sell worldwide rights, except the producer’s home territory.

Domestic sales representative agreement

This agreement is common in the US. Often, this agreement is applicable if one of the traditional talent agencies – Creative Artist Agency, United Talent Agency, or William Morris Endeavor – are involved to close a deal with a distributor in the US.

Distribution Agreement

Under the distribution agreement, a distributor acquires the distribution rights of the film. Generally, the distribution agreement describes the territory and windows for which the distribution rights are acquired, and for how long. Distribution agreements are typically negotiated by the sales agent, on behalf of the producer, as the sales agent has the relationship with the distributors.

Talent

Talent Agreement

A talent agreement is entered into, to “hire any level actor (or writer, or director) on a film project. It covers all essential terms including role, term, compensation, and credit. This is a fully customizable agreement and essential to a film production”.

Guilds and Residual Obligations

Basic Agreement

The basic agreement is a collective bargaining agreement applicable to all members of a guild. In the film industry in the US, the traditional guilds are the Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA), the Directors Guild of America (DGA) and the Writers Guild of America (WGA). Under the basic agreements, the production company has to comply with several obligations towards the guild members. This includes payment of residuals.

Miscellaneous Film Business Agreements

Interparty Agreement

The interparty agreement is a multiparty contract “between parties which, under separate agreements, each separately contracts with the film production company”. The interparty agreement stipulates the relationship between production company, financiers, sales agent, and any other parties involved in the production, financing, and international sales of the film. The interparty agreement is particularly common in the UK film industry.

Completion Bond

The completion bond or completion guarantee is an agreement between the production company and a so-called completion guarantor. The agreement is “basically an insurance policy that a producer takes to financiers, lenders, and distributors as a guarantee that the film will be delivered on time and within budget – or their money back”.

Collection Account Management Agreement

A collection account is a bank account opened in the name of a neutral, trusted third party, called the collection account manager or CAM. The CAM receives worldwide revenues in the collection account and allocates and distributes such revenues to the beneficiaries of the film in accordance with the recoupment schedule. Engagement of the CAM, the set-up of the collection and the allocation and disbursement of revenues in accordance with the recoupment schedule are formalized in the collection account management agreement or CAMA. The CAMA is one of the few multiple party agreements in the film industry, as it is generally signed by at the majority production company, the sales agent, the main financiers, and the CAM itself.

Conclusion

The production company will sign many agreements during development, production, and distribution of a film project. Furthermore, it will sign agreements to cover the financing of the film, agreements to hire talent and to satisfy obligations to guilds and guild members, and finally, it will need to enter in agreements to make sure that the film is completed and that the film’s revenues are accurately allocated and disbursed.

Do you have input or feedback on this article, or would you like to know more about film business agreements? Let’s connect!

About David Zannoni:

I have been working in film and TV since 2007. Through my consultancy firms XamanHaC and Zannoni Media Advisors, I have been involved as consultant and representative for amongst others Fintage House and Visualnet. For Fintage I negotiate agreements for films and television series, and am involved in business development and relationship management specifically in the US, Latin America and Spain. For Visualnet I expand their business globally and specifically in the US, and work on business development and client prospection.

My focus is business & legal affairs, business development and prospection, and production, distribution and financing in and from Latin America. I have given presentations, workshops and seminars at universities across the globe and at events such as the yearly conference of the National Association of Latino Independent Producers in the US (NALIP), the Winston Baker Film Finance Conferences, the Rio Film Market, the Bogota Audiovisual Market (BAM), and at the Rio Film Market and LATC Program in Los Angeles. Born in the Netherlands and a Dutch-Italian citizen, I am fluent in English, Spanish, Dutch and Italian, and basic in German.

More Stage 32 blogs by David Zannoni:

LIVE from Berlinale: Film Markets vs. Film Festivals - Distributing Your Film Worldwide

The Latin American Film Market: A Complete Guide for Filmmakers & Producers

The State of the Entertainment Industry During COVID-19

Everything You Need to Know About Independent Film Distribution

Everything You Need to Know About International Co-Productions

How International Co-Productions Work

Everything You Need to Know About Residuals & Unions

The Italian and Spanish Film Industry: A Filmmakers Guide

Collection Account Management for Film & TV Producers

2020 Entertainment Business Overview and What to Expect in 2021

How to Protect the Financier's Position on Independent Film Projects

How to Manage Revenue Sharing on Independent Television Productions

How To Put Together a Recoupment Schedule for Audiovisual Projects

Collection Account Management for Animation

How to Protect the Financier's Position on Independent Film Projects

Navigating Business and Legal Affairs for Independent Film Projects

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