Berlin: International Buyers Up in Arms Over Buy-Back Proposals Post-'Coda' (Exclusive)

CODA - Sundance Film Festival - Publicity - H 2021
Courtesy of Sundance Film Festival

With streamers paying big for global rights to films already pre-sold to the foreign buyers — see Apple's $25 million deal for Sundance hit 'Coda' —international distributors are worried sales companies could introduce mandatory 'kill fees' to force them to sell back hits.

As Berlin's European Film Market kicks off Monday, international distributors are up in arms over an alleged proposal to introduce mandatory "buy-back" clauses to films being pre-sold to foreign territories.

The idea, which several sources say has been floated by the U.S. talent agencies, would require international distributors to promise to sell back a film they have bought for a small "kill fee" should the movie, once made, fetch a bigger price from a global buyer, such as a streamer or major studio.

Several major independent buyers told The Hollywood Reporter the proposals would kill the "pre-sale" model of independent film financing and, ultimately, the independent industry as a whole.

"If we begin to accept this idea [of mandatory buy-back clauses] we'd go out of business. It would mean taking all the risk on flops and capping our upside on hits," says Ricardo Costianovsky of Sun Distribution, a leading film distributor in Latin America. "It would be fatal, not just for International buyers, but, mid-to-long term, for sales agents and for talent agents as well."

Philip Knatchbull, CEO of U.K. distributor Curzon noted that his company invests "in a slate of films in-the-knowledge that maybe only a small number of those titles will cross-over and help pay for those films that unfortunately lose money. It is these successful films that provide the platform for our business. A model shared by local distributors across the world."

A mandatory buy-back clause, Knatchbull said, would have repercussions along the entire chain of film production, distribution and exhibition if a third party can come in and cherry-pick films once their commercial value is proven."

This isn't a theoretical issue. The biggest deal out of Sundance this year —Apple Studio's $25 million worldwide acquisition of Sian Heder's crowdpleaser Coda —has been complicated by the fact that French sales outfit Pathe (Coda is a U.S. remake of 2014 French dramedy La famille Bélier) pre-sold the film to much of the world before it ever hit Park City. Around $6 million of Coda's reported $10 million budget came from the likes of Italian distributor Eagle, Japan's Gaga, and Sun Distribution in Latin America, who agreed to buy the film for their respective territories, legal commitments that allowed the producers used as collateral to secure the bank loans needed to get the movie made. Many of these buyers were blindsided by the Apple deal, which they first heard about from reports in the trade press.

Netflix faced a similar situation when it finalized a deal for Aaron Sorkin's awards favorite The Trial of the Chicago 7. The 60s period drama —starring Sasha Baron Cohen and Eddie Redmayne—had also been pre-sold to most of the world before the streaming giant stepped in to snatch up the finished film. Only by paying what some buyers call "incredibly high premiums" for the pre-sold international rights was Netflix able to secure the movie for worldwide. Several of the international distributors who pre-bought Coda, however, have told The Hollywood Reporter they do not intend to give the film back, a decision that could endanger the Apple deal.

"We've been asked, but we love the movie and we've already sold it on to our home entertainment and our TV partners," one international distributor told THR. "We intend to release it as planned in our territory, as it says in the contract we signed."

"A lot of the distributors who bought The Chicago 7 agreed to sell it back as a favor to CAA [the agency involved in the Netflix deal] but with Coda they are digging in their heels," one international buyer, who did not pre-buy either film, told THR.

Untangling dozens of international distribution deals can be a messy, and expensive, process. In the past, it was rarely necessary. The international pre-sale model was predicated on the idea of securing financing outside the U.S. to bankroll movies that then, once finished, could be profitably sold to domestic distributors. It was a win-win-win: producers got their movies financed, international distributors secured U.S. movies (often considered less risky investments than local productions) for release in their home territories, and the sales agents and talent agencies got their cut. But the rise of the streamers complicated things. Netflix, Amazon Prime, Apple and co. have the deep pockets to pay well above market price for a film they want. But, unlike most U.S. indie distributors, they typically demand global rights to be able to deliver a movie to their subscribers worldwide.

"The streamers are offering up a big pot of gold right now and everyone wants part of that," notes one veteran international buyer. "But you can't sell a film you've already sold."

That, according to international distributors, is what some agencies are proposing. Namely that all new pre-sale contracts should include a mandatory "buy-back" clause, fixing a small "kill fee" —reportedly around 10-15% of the total value of the original deal — should a streamer or studio decide to snatch up worldwide rights after the movie is made.

"It's a con —you are selling a film you already sold, that's not yours," says Stefano Massenzi, head of acquisitions at Italian distributor Lucky Red. "And then you want to put a clause in your contract to make it legal, basically asking your buyer to be an accomplice in your con."

Global buyers see the proposal as a "non-starter," according to a letter drafted by dozens of international buyers on February 12, 2021 —and seen by The Hollywood Reporter —but never sent, due to concerns that any coordinated action by competing distributors could be seen as collusion.

"It is a well-known fact that the independent, international distributors are a lynchpin for getting independent films financed, thereby enabling talent agencies and sales agencies to earn their fees," the letter reads. "When foreign buyers commit to a film, usually at the script stage, they take on substantial risk, uncertain of the outcome. As such, they also need to derive the full benefit of said risk."

"Incredible short-sighted" is what Olivier van den Broeck, managing partner at The Searchers, a major indie distributor in the Benelux region, calls the suggestion for a mandatory buy-back clause. "I worry that this idea is starting not just to get into the minds of some of the talent and international sales agents, but also into the minds of some of the financiers," van den Broeck told THR. "Now there is no international sale business without the agencies, but without the foreign buyers there is no international business, period."

David Garrett, CEO of global sales group Mister Smith Entertainment and veteran of the independent film scene, acknowledges that individual distributors could agree to "buy-back" deals as a favor to sales companies or agencies but that introducing an industry-wide contractual "buy-back" clause into pre-sale deals would be " utterly unworkable and would kill the independent distribution business for good. We would be biting the hand that feeds us." CAA, Pathe and ICM were not initially available for comment.

Alex Ritman contributed to this report.