There is no aspect of filmmaking that is evolving faster, or as successfully as digital filmmaking and its offshoots.
In June 1999, Twentieth Century Fox released George Lucas’ digitally mastered Star Wars: Episode 1 – The Phantom Menace. This was the first time that a major studio released a film digitally.
Digital filmmaking represents a huge breakthrough in the way films are produced. Digital filmmaking has been compared to the arrival of sound in 1927.
Digital filmmaking provides tremendous cost savings during production and in post-production. Filmmakers are not burdened with servicing the bottom-line requirements of banks, studios, insurers, completion guarantors, foreign sales companies, and distributors.
New delivery systems for entertainment content are continually emerging. Apart from the traditional means of distributing films and TV, programming can now be delivered by digital methods such as delivering TV directly to the home (DirecTV), or over the Internet, which is used to deliver such online streaming services such as Lion’s Gate/Trimark’s CinemaNow.
Where a digital distributor wants to exhibit a movie over the Internet on its website, over DSL systems, or via a private, closed delivery system, they will provide a producer with a distribution agreement.
There are some factors that a producer should be aware of when negotiating a distribution agreement.
The Licensing Period
Your license term for digital exploitation will depend on what other rights (if any) you have previously licensed. If you have had no previous exploitation, try to negotiate the license for six months so that you can reassess the digital marketplace in the not too distant future.
The digital distributor will usually want to use the names, voices, likenesses, and photographs of actors for their marketing purposes. You should be careful not to grant rights to the digital distributor that are not available under your various talent agreements.
One provision that a producer should ask for is a commitment on behalf of the digital distributor to advertise the movie in a negotiated manner.
Obtaining an advance against royalties for a digital license is difficult. If an advance is not possible, a producer should ask for a large share of the gross revenue for downloads, streaming, etc (ask for around 50%).
Also, ask for a share of advertising revenues associated with the viewing of your product. If relevant, also ask for stock options and the right to purchase stock at less than market rates. Specify the minimum rates to be charged for downloads and viewings. You must make sure you are clear as to how your share of royalties from subscriptions is to be calculated.
You should receive monthly statements within 60 days detailing all relevant financial details associated with the digital distribution. The distribution agreement should have a provision allowing you to audit the digital distributer’s financial records. It is wise to negotiate for the digital distributor to pay for the cost of an audit.
A provision should be included in the distribution agreement requiring cross-linking of the digital distributor’s site with your official site as well as the right to sell merchandise from your site.
Delivery of materials
It is advisable to attempt to get the territorial distributor to pay for subtitled versions of the product that may be required.
The digital distributor should agree not to authorize any copies of the sub-master to be made without your prior written consent and should agree to keep the motion picture sub-master secure during the license period and agree to destroy any encoded and compressed versions of the movie after the license period.
The protection of intellectual property
A producer should reserve all rights concerning their product and any other software or intellectual property.
A common provision in a digital licensing agreement provides for a reasonable notice period for breaches on either side but in the event of a breach on behalf of the digital distributor, you waive your right to any injunctive relief, the right to terminate the agreement or seek recision. The only remedy would be an action at common law for damages.