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Overseas distribution transactions can involve shady players

More independent filmmakers with just a script and an actor or two attached are striking deals with foreign buyers eager to pick up distribution rights to the finished product. But while such deals provide them with a way to raise cash to make their movies a reality, entertainment lawyers caution that the market for foreign distribution rights is still a wild west filled with shady players.

“Many of them are fly-by-night operators with a loosey goosey way of doing business,” said entertainment litigator Alex Weingarten of Weingarten Brown LLP, who has sued foreign film distributors for breach of contract. “But ultimately, the problem is that you have international transactions that are frequently small, and that makes it difficult to justify pursuing the people involved.”

Last week’s American Film Market in Santa Monica saw an uptick in buyers who have come from around the world to trade rights in 442 films. There were more Asian and Latin American buyers than in years past, and companies from Korea and Japan increased the most among countries in attendance. And for the first time in years, major studios like Sony Pictures and Paramount Pictures, which have access to global operations, were hawking the foreign rights to their movies, the Los Angeles Times reported.

That mutual interest reflects the difficulty of financing films in the economic downturn, as well as the growing clout of overseas markets. Foreign box office receipts are rising while U.S. ticket sales decline, and Brazil, India, Korea and Japan in particular have a growing appetite for American movies.

“These foreign markets have become not just an important revenue stream, but they functionally enable movies to get made,” said Ken Basin, an entertainment lawyer at Greenberg Glusker Fields Claman & Machtinger LLP who advises independent filmmakers. “Sometimes you can finance nearly all of the picture that way.”

Foreign presale contracts are a key consideration in how banks determine how much in loans to dole out to independent film projects. The more revenues promised from a reputable distributor or sales agent, the more the bank will be willing to lend, using the presale agreement as collateral.

However, collecting on the royalties once the movie’s made and sent abroad often poses problems for filmmakers, lawyers said. Foreign distributors who perform accounting sleights of hand, resell rights they don’t own or who vanish altogether are only too commonplace.

Lawyers said doing due diligence on the other party is important.

Weingarten said he’s heard of distributors who have bought theatrical rights, only to illegally resell them to a TV station – once the movie hits TV screens, few viewers will go to the box office, and there’s nothing the filmmaker can do about it. He recalled another instance in which all of the assets of the distributor were encumbered by other liens.

“It’s very, very difficult to nail people down and find their assets, and most of the foreign film markets are small titles,” he said.

Bryan Sullivan, an entertainment litigator at Early Sullivan Wright Gizer & McRae LLP, said he advises his clients to get as much money upfront as possible, rather than wait to collect a share of the profits if the movie becomes a hit.

“You just don’t know how much the distributor’s really collecting, and they often don’t have the best bookkeeping – maybe on purpose,” he said.

Another helpful consideration is designating the International Film and Television Alliance as the arbitrator in the contract. According to IFTA rules, the losing party is barred from the U.S. film market if it doesn’t satisfy the judgments that come out of arbitration.

“To the extent the other party wants to participate in the U.S. market, that gives you more of a practical incentive because it impedes their ability to do business in a significant marketplace,” Basin said.

But even if the American film company wins a default judgment through arbitration, there’s no guarantee that it will get any money back, lawyers said.

Still, the process may be worthwhile, if only to clear the title pre-emptively.

“What’s important,” Sullivan said, “is to get a declaration that they don’t have any right or title in the film throughout the world.”

Source: Jean Yung, Los Angeles Daily Journal