Alternative distribution pushes dealmaking in new directions


Tiffany Shlain became the envy of many in the independent film world last month by getting something few indie producers have been able to secure: distribution via Apple's iTunes store. Shlain had spent two years traveling the world showcasing "The Tribe," her documentary about Jewish culture, at more than 70 film festivals. Despite winning prizes, hopes were scant that the film would ever line up a theatrical distributor or command lucrative TV license revenues.

But at the Sundance Film Festival in January, she ran into Ben Dillon, vp marketing for iTunes' movie division, who invited Shlain to submit "Tribe" for consideration. Apple soon decided it wanted the film.

Then came the hard part: negotiating a deal.

When theatrical sales at markets like AFM aren't possible, indie film producers like Shlain increasingly are exploring new distribution possibilities, including download-to-own on the Internet, short clips delivered over mobile phones and films released directly to VOD services. That shift, say producers, indie agents and film lawyers, has given rise to new contract structures and more creative film dealmaking.

"Tribe" was the first indie docu sold on iTunes, and Shlain's deal was the first of its kind for Apple. In exchange for forking over exclusive distribution rights, she will receive 60% of all $1.99 sales of her film.

"I heard Steve Jobs once say he wanted to make a dent in the universe," Shlain says. "I hope to make a dent for indie filmmakers. Filmmakers should be paid for their work, and if you believe in that like I do, then you need to set up structures to accomplish that goal."

These days, producers and even mainstream distributors are doing just that, negotiating contracts with innovative language that attempts to account for evolving distribution platforms. Fox Searchlight did a deal with iTunes to offer a free prequel to Wes Anderson's current release, "The Darjeeling Limited," while producers of last year's "Saint of 9/11," "Sherrybaby" and "This Filthy World" signed deals with Netflix. And then there was the controversy that erupted over  Steven Soderbergh's "Bubble," with Mark Cuban and Todd Wagner using their portfolio of indie film companies to try to consolidate the theatrical and video distribution windows.

But when digital distribution is all that's available, the dealmaking often is required to be even more creative. Matthew Scott Harris, founder of Rusted Rhino Prods., made "Dimension" with the intention of distributing it theatrically. When no such distributors made offers, he negotiated a deal with Jaman, which rents feature-length indies for free online (with ads) or sells them for download at $4.99.

Normally, Jaman gives filmmakers 30% of revenue and pockets the rest, but Harris signed a priority placement deal that split revenues evenly. "The fact (that) they didn't want exclusive distribution rights, like many of the other online film sites, was very important," Harris says.

Piracy and territorial concerns also play a large role in helping indie producers decide on the kind of digital distribution deal that makes sense. Andrew Hurwitz, a New York attorney, says his independent producer clients often are beholden to foreign distribution presales to help fund production or marketing costs. Producers thus have to be careful that a deal to make a film available online doesn't conflict with foreign territory rights.

"It's not uncommon to have provisions in the contract that freeze the right to distribute a film online until the online distributor proves technology that will ensure against piracy and territory abuse," Hurwitz says.

Further, lawyers who negotiate digital distribution deals are still grappling with the meaning of certain contract language. For instance, few seem ready to agree whether to treat VOD as "video rights," where distributors take a cut of every unit moved, or as "television rights," where distributors are charged a flat licensing fee. Some television stations argue that their standard television rights license already includes VOD.

"Though producers are investing in contract language that defines these streams from an economic perspective, there aren't any industry-wide definitions," says Sue Bodine, an indie film lawyer. "What it adds up to is more provisions."

And more potential complications. Insiders say handling digital deals can be frustrating. "Sometimes you close a deal and they come back to you and say, 'We need these rights as well,'" says Nu Image Entertainment vp Christian Mercuri. "If I sell TV rights in Germany and someone else wants video-on-demand rights, they will both claim it as their exclusive right."

Even when contemplating alternative distribution deals, indie producers say they keep their eyes on the larger prize. "We're doing all these funky deals where, in many cases, the money is so low, you have to think about subsequent uses of (the film)," says Linda Lichter, another film lawyer.

Even the smallest indie producers blanch at some of the terms offered by digital distributors. At an IFP Filmmaker Conference in September in New York, a film producer asked Kathleen Powell, vp worldwide programming at Jaman, why the site locked up nonexclusive distribution rights for up to nine years. Powell responded that it costs the company as much as $2,000 to encode a movie for digital distribution. "It's not economical to put it up one week, only to pull it down the next," she told the audience.

Given that theatrical distribution is still the apple in many independent filmmakers' eyes, the number one rule in contract negotiation with an online or mobile distributor is never make any deal that ruins a possible relationship with a theatrical distributor. "Right now, direct distribution via the Internet is the last choice," Lichter says. "There is no advertising for it. People like theatrical because studios and distributors will spend a lot of money making sure people know the film is out there."

Another complication: Traditional distributors often want broad new-medium rights along with the right to release a film in theaters. That's led to a tug-of-war battle between distributors and producers.

"Distributors have a hard time leaving rights on table, and nobody is sure what happens next," says Charlotte Mickie, managing director of Maximum Films International and a former exec at sales, financing and production powerhouse Celluloid Dreams. "It can slow a deal down."

Some producers say they have set limits on what they'll grant when theatrical distributors ask for "all rights" packages. "We try to retain rights as much as possible," says Shebnem Askin, head of 2929 International, one of Cuban and Wagner's ventures. "As a company policy, we don't sell mobile rights, and if other rights are involved in a deal, we try to retain approval and control. The potential of these rights are not yet known to anybody, so to put a value on them is to sell our future."

Askin and other producers say they are willing to grant distributors a "first look" at acquiring further digital rights when business opportunities materialize. Brian O'Shea, executive vp at Odd Lot International, says he is open to "all rights" deals. "Depending on how much the distributor is willing to pay for the film, we are willing," he says.

Arianna Bocco, vp acquisition and production at IFC, says that distributors increasingly are focused on making these alternative deal structures work because they know their future is on the line. "There's always going to be a bit of Darwinism involved with being a distributor," she says. "People will start new distribution companies that will succeed or fail. But anything that gives more opportunity to small films and doesn't cost hundreds of millions of dollars is a good thing."

In the future, companies like Google and Apple could play a much larger role in distributing indie films. But for that to happen, says Jean Prewitt, president and CEO of AFM parent organization IFTA, digital distributors will have to bring something more to the table. "Producers expect distributors to be co-creators, helping to assemble the financing for a project," Prewitt says. "I haven't seen technology people step into that role just yet. Distributors like Amazon and Google are looking for the rights, but at this point, with some exceptions, they are not putting up any money up front, so that means they are in the back of the queue."