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Sales Company's Liability for Low Film Sales

Expert Witness: Kathryn Arnold
Sales of independent film is a volatile undertaking, even under the best of circumstances. The competition is stiff, buyer’s tastes shift, and thousands of films are produced globally each year. According to IMDB, in the last 10 years, film production has doubled from 4,585 in 2005 to 9,387 films in 2015.

The fight for screen space is fierce and buyers have become more particular about the types of films they will acquire, and the amount of money they will pay. Therefore, International Sales companies must be careful, and filmmakers must be realistic with the expectations for revenue generation.

The goal of any sales company is to make as many sales in as many territories for as high a price as possible. When sales don’t reach the projected levels, the challenges the independent film market faces today are important to consider.

The advent of big star, tent pole movies from the major studios has made the journey for independent films even harder than in years past. Large marketing budgets and significant ad space purchased by the studios gives them a lock on the majority of screen times – both theatrical and on streaming/VOD services. Therefore, an independent film must have either well-known talent, a story within a well-defined genre, and/or strong critical reviews in order for buyers to acquire the film and risk precious marketing dollars on a release.

Another major external factor sales companies face is the ever-changing global economy. The fluctuating dollar, and the emergence of streaming and VOD platforms have dramatically changed the type and number of films buyers will pick up. Given those risks, established international film sales company include caveats in their sales agreements, making sure all parties understand the unpredictability of the market from the contract stage:

“However, it is impossible to judge the future realization of revenues, since many factors, including fluctuating market conditions, determine the value of a film in each territory.”

Additionally, during the last 5-7 years the amount each territory is willing to pay for a title has declined considerably for smaller budgeted, “art house” films. Variety published an article on May 13, 2016, entitled “Spanish Film Sales Agents Look to Latin America, Small Screen” showcasing a study performed on the film landscape in Spain.

For instance, where Spain may have paid $100,000 for a film 10 years ago, they may only be willing to spend $5-10,000 now. And that is for a top tier film with known talent and positive reviews as stated above.

Despite some exceptions, Domestic/English language films have followed the trend of foreign-language fare the world over and now sell abroad at lower prices than 10 years ago. International buyers are becoming increasingly selective in foreign-language acquisitions and struggle ever more to open them theatrically.

“If distributors were already cautious, they are now still more,” says Vicente Canales at Film Factory Ent. “Buying a film, they need to see important theatrical elements in it to acquire it.”

The International business is polarizing between small and large budgeted films. Per Canales, “There’s practically no middle ground: Either you make good sales on films with a theatrical opening or small sales for other release windows.”

Many lower budgeted films, aka “passion projects” exemplify these challenges. Often times these films will have an unknown leading actor, a relatively unknown director, a hard to define genre, and a low production budget. Even if the Film is lucky enough to include one or two relatively known actors – if those actors are not in the film for at least 20 minutes of screen time, they will have little or no benefit to the bottom line. If a film does not have any of the required elements stated above for a theatrical release, it may or may not even break onto the small screen now that Netflix and Amazon are focused mostly on original programming. Where Amazon used to pay 12 cents per view, it is now paying less than 4 cents per view. That represents a 70% decrease in potential revenue from subscription service deals.

The point of all this being, is that Sales Companies have the best intentions to sell a film for as much as possible. However it is imperative that the filmmakers be realistic in the type of revenue they expect the film to generate. Estimates from a variety of foreign and domestic distributors and understanding the elements required to engage a distributor to execute a theatrical release, are important elements to understand prior to making a deal. If a VOD/subscription service deal is the endgame, a small/regional theatrical release may serve as a promotional vehicle to drive online and Television sales, but it may only be a loss leader and not provide significant revenue.

In all these cases filmmakers must be realistic in what they expect. Blaming low sales on the international sales agent or rep is not the answer. Even though the sales company’s goal is to make as much money as possible, there is zero guarantee a film will even make its budget back.

ABOUT THE AUTHOR: Kathryn Arnold
Ms. Arnold has 20 years experience in film production, finance and distribution. She understands the inner workings of the entertainment industry, its hiring practices, business development, financing and economic complexities. She has provided expert testimony and consultation on over 5 dozen cases regarding economic damage and lost wages from copyright infringement, breach of contract, standards and practices, disfigurement, personal injury, wrongful death, and economic downturn. Clients include Gibson, Dunn & Crutcher; Bowles & Verna LLP; Haynes & Boone; Shook, Hardy & Bacon, Dummit, Buchholz & Trapp; Jenner & Block among others.

Copyright Kathryn Arnold

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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