Production and Distribution Agreements

The recoupment schedule is where a production is really negotiated. Everything above it determines who gets a credit; the waterfall determines who gets paid.

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Co-Productions | Financing | Distribution | Waterfall

The terms that decide the outcome.

The recoupment waterfall, and where each party sits in it.

The distribution fee, and whether expenses are capped.

Term, territory and the media granted, and what reverts on expiry.

Delivery requirements, because payment is usually tied to them.

Quick Answer

What should a producer focus on in a distribution agreement?

The waterfall, before anything else. A distribution agreement allocates revenue in a defined order, and where a producer sits in that order determines whether the production ever generates a return. Typically distribution fees come off first, then recoupment of distribution expenses, then repayment of any advance, then financiers in their agreed priority, and only then the producer and any profit participants. Two terms materially affect the outcome and are negotiable more often than producers assume: whether distribution expenses are capped, since uncapped expenses can absorb revenue indefinitely, and whether cross collateralisation is permitted, which allows losses in one territory or medium to be set against returns in another. Beyond the waterfall, the grant clause matters: term, territory, media, holdbacks and what happens on expiry. A grant of all rights in all media in perpetuity throughout the universe is common and is not the only available option.

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THE WATERFALL

Where the Money Actually Goes

Revenue does not arrive at the production company. It arrives at the distributor and flows through an agreed sequence, and each step reduces what reaches the next. Understanding the sequence is more useful than negotiating almost any other term.

The distribution fee comes off gross, typically as a percentage that varies by medium and territory. Then distribution expenses are recouped, and this is where uncapped expenses do the most damage, because there is no natural limit on marketing spend that the producer controls. A cap, or a requirement of consent above a threshold, is the single most valuable term a producer can win.

Then advances, then financiers in priority, then the producer. By the time a production has paid a fee, recouped uncapped expenses, repaid an advance and satisfied financiers, the producer’s share of a modestly successful title is frequently nothing. That is not a failure of the agreement; it is what the agreement said.

THE GRANT

Term, Territory and Reversion

The grant clause defines what the distributor actually receives. Term, which may be a period of years or perpetual. Territory, which may be worldwide or carved. Media, which should be enumerated rather than expressed as all media now known or hereafter devised where that can be avoided.

Holdbacks control sequencing: how long before a title may go to a particular window. These matter more as distribution patterns shift, and a holdback drafted for a theatrical first release makes little sense on a title with a streaming premiere.

Reversion is the term producers regret most often. On expiry or on breach, what comes back, in what condition, and what continues. Existing sub distribution agreements typically survive, so a reversion that leaves a producer holding a title encumbered by third party deals is a reversion in name only.

CO-PRODUCTION

Two Kinds, and They Are Not Interchangeable

A treaty co-production under one of Canada’s audiovisual treaties, administered by Telefilm Canada, produces a production that is national in each participating country and therefore eligible for domestic incentives in each. That is a substantial benefit and it comes with substantial conditions on creative and financial participation, and on the proportions each party contributes.

A co-production in the loose commercial sense is simply two companies making something together. It carries none of the treaty benefits and none of the constraints, and the term is used for both, which causes real confusion in early discussions.

For a treaty co-production the structure has to be right before the application, not after. Which side controls what, how the copyright is held, how revenues are shared and which country leads are all matters the treaty and the administering bodies examine, and they cannot be reverse engineered once shooting has begun.

DELIVERY

The Requirement That Holds the Money

Payment under a distribution agreement is almost always tied to delivery, and delivery means satisfaction of a delivery schedule that runs to many pages: masters and formats, music cue sheets, chain of title documentation, errors and omissions insurance, artwork, credits, closed captions and described video, and specified textless and dubbing elements.

The schedule is treated as boilerplate at signature and becomes the whole relationship at the end. A producer who cannot deliver an item does not get paid, whether or not the item is material to exploitation.

Two protections are worth negotiating early. A cure period for non material deficiencies, so a missing element does not suspend the entire payment. And a technical acceptance process with a defined timeline, so delivery cannot be rejected indefinitely without reasons.

Common Questions

Frequently Asked Questions

What is cross collateralisation and should I resist it?

It allows a distributor to set losses in one territory or medium against revenues in another, so a strong result in one place is absorbed by a weak result elsewhere. Producers generally resist it or seek to limit it, for example by ring fencing territories or windows. Whether you can is a function of leverage.

Should distribution expenses be capped?

From the producer’s side, yes, and it is often the most valuable single term available. Uncapped expenses recouped off the top can absorb revenue without limit, and the producer does not control the spending. A cap, or a consent threshold above an agreed figure, addresses it.

What is a treaty co-production?

A production made under one of Canada’s audiovisual co-production treaties, administered by Telefilm Canada, which is treated as a national production in each participating country and can therefore access domestic incentives in each. It requires defined creative and financial participation and the structure must be right before the application.

Can I grant only some rights?

Yes. Grants are commonly carved by territory, by medium and by term, and a full grant of all rights everywhere in perpetuity is a negotiating position rather than a necessity. Whether you can carve depends on what the distributor is paying for and on your leverage.

Why does delivery matter so much?

Because payment is tied to it. The delivery schedule is a detailed list, and an item not delivered can suspend payment regardless of whether it affects exploitation. Negotiating a cure period and a defined technical acceptance timeline at the outset avoids that outcome.

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Production and Distribution Agreements

What should a producer focus on in a distribution agreement?

Speak to an Entertainment Lawyer

Where the Money Actually Goes

Term, Territory and Reversion

Two Kinds, and They Are Not Interchangeable

The Requirement That Holds the Money

Frequently Asked Questions

Review a Production or Distribution Agreement

Lexaltico LLP

Ready to Talk? Start My Enquiry

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