In today's fast-paced media marketplace, new delivery systems for entertainment are continually emerging. Traditionally, programming has been delivered in theaters and by television and more recently by videotape and then DVD.More recently, digital delivery methods have appeared and offer new means of exploitation such as satellite for theaters (a theatrical right) or homes through services such as DirectTV (a television right), digital videodisc (DVD) (a home right), the Internet, and such systems used to deliver online streaming or downloading services.
Direct digital distribution is beginning to surface as a major way of providing movies to audiences online. Films that cannot attract a theatrical release can certainly have a presence online. The film industry is following the music industry by using the Internet as a way to expose their content.
This platform is placing a huge dent in physical sales, as witnessed in plummeting sales figures the last quarter of 2009. Those companies that are choosing to not take advantage of the digital market that has exploded over the last decade are fooling themselves. More independents are becoming largely successful by keying in on the digital markets that have been launched globally.
Independents are typically readily adaptable to market conditions and are ideally positioned to take advantage of new and existing online distribution opportunities, just as they were able to take advantage of opportunities during the early years of home video. Once you have determined that the digital route is right for your product, here are some key issues to consider:
The Grant of Rights
It is no secret that newer online digital distribution entities are trying to build product libraries as assets by taking expansive rights for long periods of time. Do not be surprised if a newer, less well known online digital distributor hands you an agreement that grants it all rights in all media worldwide, not just digital, online or view-on-demand rights. Do not be quick to give away more rights than you should. Get yourself informed and know the costs and procedures involved in new digital delivery methods and you will be able to negotiate knowledgeably from a position of strength.
A good number of online distributors, and especially the more established ones, will agree to license only digital or online rights for a limited term and allow you to keep the copyright and all other rights in your product. You may wish to split digital rights between different distributors: those that license downloads, those that utilize a streaming method of exploitation or both methods, or those involved in traditional all-rights exploitation like theatrical, television and DVD, such as the major studios and independent distributors. It is important to perform traditional due diligence, including Uniform Commercial Code and related searches to find out as much as possible about the commercial health and reputation of your online distributor. Before you grant any additional rights to your digital distributor, make sure you retain as many rights as you can (e.g., your right to sell packaged DVDs and merchandising items online). Also try to negotiate a fair advance or at least a 70/30 split of the revenue in your favor.
Exclusivity
As the online distribution process matures, fewer distributors will ask for exclusive online exploitation, but some may try. Because the online programming market is still developing, and iTunes and Amazon certainly have had a head start, few true leaders with large market shares have yet to emerge, so it is risky to grant exclusivity. A safe philosophy is to grant a nonexclusive online license for a limited term. This will allow the market to continue to mature and you will be able to reassess your position after a relatively short window.
Territory
Online distributors may ask for worldwide rights. Since you may prefer to license international rights or specific territorial rights in a completely different manner, try to get the online distributor to limit the territory to the United States or the specific territory in which it is primarily doing business.
Licensing Period
Your license term for online exploitation will first depend on what other rights, if any, you have previously licensed. If you have no previous exploitation, at least try to limit the license period to 6 to 18 months so that you can reassess the online marketplace in short order. Keep your license periods as short as possible.
License Fee/Payment Terms/Audit
Many online startups will claim poverty because the market is still developing so obtaining an advance against royalties for an online license may be difficult, but not impossible. If an advance is not possible, ask for a large share of the gross revenues for downloads, streaming or other licenses (50-70% is obtainable), and try for a share of advertising revenues associated with viewing your product. In addition to an advance and royalties, consider asking for stock options, and the right to purchase stock at lower than market rates.Specify the minimum rates to be charged for downloads and viewings.
Cross-Links
Make sure you include a provision that requires cross-linking of the online distributor's site with your official website for your company or product. Try to retain the right to exhibit the product on your official site as well as the right to sell merchandise, videos and DVDs of your product from your own site.
Residuals and Contingent Payments
Online distributors are not typically interested in getting involved with making any contingent payments to cast and talent or assuming any responsibility for residuals for the exploitation of your product online. Although this may be difficult, try to get the online distributor to assume the obligation to pay all current and future guild-mandated residuals for online exploitation payable to talent and other personnel who rendered services in connection with your picture. With respect to contingent compensation payments due to actors, directors, writers, musicians, producers and other talent, online distributors generally take the position that these are the producer's obligation.
No Sales Guarantees
The market for digital movie exhibition is still relatively new, and forecasting market potential is difficult if not impossible. With this in mind, you will typically find a clause that indicates that the online distributor has not made any guarantees, forecasts or other estimates, expressed or implied, with respect to the number of transactions, the revenue expected or the market share to be obtained from the digital exploitation of your movie. This sort of clause is typically non-negotiable.
As the computer-using and wireless hand-held segment of the entertainment consuming population continues to increase, as digital cable lines, DSL, wireless, satellite, and other systems continue to converge, and as delivery technology continues to improve, one can expect that delivery of motion pictures online or wirelessly will rapidly expand over the next few years. As the market matures, digital pricing, territorial limitations, development of an appropriate digital exploitation window, the issue of exclusivity and the appropriate license period will begin to stabilize and a set of even more specialized standard terms for online and wireless exploitation will emerge.
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