Introduction

For most entertainment projects, the earnings power outside their home territory exceeds, and often far exceeds the earnings from their origin territory. Consequently, balanced producers closely plan and coordinate each project with their international sales agent (ISA), distributors, production, and/or finance partners in the potentially highest earnings territories—as close as they do for each project’s home territory.

This chapter examines how this is done, the dominant international territories, the top-tier ISAs, how to secure relationships with them, or directly with lead territory distributors, all to assure projects perform at their peak distribution and earnings.

Universality of Audiences

Every territory’s filmmakers have their own unique style; and yet the big universal audience drawing cards are simply powerful stories, well told. If they are true, all the better. Audiences do not attend pictures because a mountain of production money was spent on them. They spend their time and money with a project because they want to experience something wonderful. To sit in the dark, carried away in the grip of a powerful story, feeling truth whispered to them—and perhaps even to hear God speak to them.

If it’s worthy of an audience in one territory, with very few exceptions, it’s worthy of an audience in almost every other territory. With a little—okay, for most pictures, a lot—of multi-territory preparation, our audience universe explodes, and therefore our projects’ earnings.

Globalization’s Increasing Intensity

It is awe-inspiring to observe the global blending of cultures, largely brought about by mobile phones’ fervent user and technology expansion, social media, and the extraordinary daily surge of the planet’s middle class. Entertainment audiences are increasing by thousands per minute and millions per month. Nowhere is this more dynamically demonstrated then in the increase of eager global audiences consuming one another’s motion pictures, games, and entertainment content of every kind, length, and economy. The best of these are moving into the global marketplace almost faster than the major international territories’ keen-edged marketing and distribution teams can:

• (1) feed audiences growing appetite for the strongest content from around the globe
• (2) effectively use the runaway social media for reviews, blogs, and clickable indicators, and
• (3) each territory’s media giants can build-out their Internet delivery infrastructure to keep up with audience streaming demands.

Keeping ahead of global audience growth and their entertainment consumption is the stunning escalation of technology advances in every area of content production, the increased capacity and diminishing cost of consumer product visual effects, as well as the Internet’s streaming infrastructure enablement by many entities and chiefly led by Google.

Asia deserves and is receiving everyone’s attention. By their sheer numbers (34 percent of the world’s population), China and India have the highest number of daily new Internet users and new middle class entrants, and they hold the number one and two slots for most annual motion pictures released and tickets sold. However, each have substantially lower theater admission cost, China releases significantly less entertainment produced outside its borders, and both countries have rampant piracy. These territories remain massive producer opportunities, yet require significant planning and use of those who are experienced in releasing in these territories, especially in China.

The top 14 motion picture markets by box office gross are—the United States, China, UK, Japan, India, South Korea, France, Germany, Australia, Mexico, Russia, Italy, Brazil, and Spain. The audiences in their territories spend more on motion picture entertainment than any others, and now more than ever demand the attention of producers. From 2014 to 2015 the global box office alone increased by $2 billion and growing.

The most successful balanced producers prepare their projects for the world’s expanding audiences, especially in these major territories. In addition to expanding each picture’s income and audiences, it also broadens a production entity’s brand to new international distributors. These distributors anticipate future releases, to ever-more effectively participate in optimizing each project’s play in their territory, and confidently distribute and consider co-production and equity participation in these projects.

Recognizing the earnings dominance of entertainment in the U.S., some producers from other territories have become successful in producing projects in both English-language and their territory’s language, select projects with English speaking characters, characters speaking their home territory’s language and subtitling accordingly; or producing exclusively in English as if produced by an English language producer. French producers are some of the most seasoned and successful in this process with a string of global English language hits.

Regardless a producer’s approach to production, embracing the income benefits of territories outside their primary release market should encourage a producer to seriously evaluate and determine the most earnings-beneficial territories for each of their projects. Many pictures are too culturally specific to warrant general audience release outside their core market. However, even these will likely merit a specialized release in territories with sufficiently dispersed audience populations.

Most pictures will earn more income from the aggregate territories outside their home territory, than inside. Producers unfamiliar with these other territories should use an ISA or international distribution entities to assist them in assuring the most beneficial exploitation of each project in every territory.

Contact with ISAs or distributors in the international territories with the highest probable benefits should occur soon after a producer greenlights a picture. Just as producers identify each picture’s core territory distribution windows and sales breakdowns, they should also prepare each project’s unique major international territory marketing and releases with the support of their ISA or, if warranted, directly with their prospective international territory distributors.

Producing for Global Audiences

Balanced producers always determine and analyze their leading global territories as part of each of their project’s development. Their audience expansion is simply too great and their respective earnings too significant to not include them.

In this chapter’s Figure 3.1, a six-leading territory sampling is given, revealing each of their 2016 top ten box office pictures, with their respective earnings. This is a helpful reference to these territories’ earnings. Yet, each producer should track and study the distributors, audiences, and respective earnings of at least the top ten pictures, in each of their top ten (or more) territories, with the greatest potential audiences, and earnings for their particular pictures.

Global and International Box Office Statistics

Because international box office reports best demonstrate how well pictures produced outside and inside each territory play, Figure 3.1 reviews the performance of the top 10 box office hits for 2016 in six of the largest entertainment-consuming international territories. Further, Figure 3.2 reviews the international-territory box office earnings of the top 30 motion pictures ever released globally. Producers will be significantly benefited if, for their top three international territories, they research and examine at least their top 50 pictures.

The chart in Figure 3.1 reveals there is an average of nine U.S. pictures of the top 10 grossing pictures in these six dominant international territories, and U.S. pictures earned an average 89 percent of the theatrical gross revenues in these territories in 2016. The dominance of U.S.-produced motion pictures in all global territories is a reflection of these pictures being prepared from their development to well play in these territories.

Figure 3.2 reveals a broader view of American films in the global market. These statistics also clearly indicate the broad spectrum of motion pictures that capture audiences globally, the picture preference similarities between U.S. and international audiences, and the earnings dominance of U.S. projects in international territories.

These analyses are prepared by Gillen Group LLC and Entertainment Strategy.

The top 30 pictures released in 2016 earned $17.9 billion in global box office receipts, with $11.7 billion of this income earned outside the U.S. Typically the split between the distributor and exhibitors (theater owners) is 50/50 in the U.S. and 45/55 (distributor/exhibitor) in the other major territories. Although the single largest earnings territory for U.S. pictures is the United States, it is crucial for U.S. producers to understand that approximately 60–70 plus percent of pictures’ earnings that are prepared for global release is derived from international audiences and that well over half the international audience income comes from the highest earnings territories. The most successful producers include the leading distributors within these territories in each of their project’s development and production, marketing, and branding decisions.

Figure 3.1 Six Leading International Territory Motion Picture Grosses 2016.

All amounts in USD Millions.

Source: Screendaily

Figure 3.2 Leading 30 Motion Pictures Globally and the International Share of

Global Box Office for 2016.

Source: Box Office Mojo

Producer Relationships with International Distributors

Producers should begin their most important international territory relationships for each of their pictures early in that picture’s development. License relationships in these key territories should occur naturally as part of development for some core territories, and after completion, for others. Producers should attend the major motion picture annual international sales markets to expedite international territory relationships. These include:

• The American Film Market, held in Santa Monica, California, in November, for one very focused week of picture rights sales that also accommodates the full spectrum of international Distributor and ISA relationship activities.
• The Cannes Film Festival and market, held in Cannes, France, in May, is one of the busiest, yet most relaxed of the festivals, focusing more on production packaging and promotion than rights sales. With international media gathered from around the world, Cannes is arguably the world’s largest press junket. Especially if the project is opening soon after the festival, one can get significant press to many territories, without having to travel to them.
• EFM (European Film Market) runs for nine days in conjunction with one of the most important film festivals in the world, the Berlinale, in Berlin, Germany. It is the first major film event of the year and is viewed as a barometer for the upcoming year in film.

Balanced producers most often use these markets for the following reasons:

• To centralize their meetings with major international territory distributors, ISAs, studio heads, and distribution chiefs. The distribution top executives may attend meetings in London before Cannes, or may stay in Cannes for a few days after the festival, attending meetings, and leave actual market attendance to their staffs. This is also true of the American Film Market (AFM). International distributor chiefs often travel to Los Angeles just prior to AFM’s opening and stay perhaps into its first week only. But they often exclusively conduct their business outside the market.
• To pursue and consummate all non-major international territory sales. The major territories should be sold in the manner introduced in the preceding chapters, and reviewed in Chapter 14.

For pictures to flourish in international territories, producers should do the following:

1. Manage relationships with international distributors much as they manage and value their core-territory distribution relationships, applying the relationship principles presented in Chapter 2.
2. Recognize that the best international distributors focus on target audiences and the power of each picture’s campaign, and do everything reasonable to optimize each picture’s exploitation and profits within their territory.
3. Recognize that international distributors have their various marketing strengths, just as U.S. distributors do. One distributor may have greater capacities and successful experiences distributing romantic comedies; another may be stronger in releasing action-adventure pictures. These relative strengths in marketing and releasing different types of pictures is a reflection of each distributor’s familiarity with preparing campaigns, buying media, and creating promotion for these unique target audiences. It is important that producers develop an understanding of, and eventually relationships with, all the leading distributors in the major markets, providing each picture the benefit of the greatest earnings power, matched with its particular audience dynamics.
4. Consider that the distribution window timings vary in each territory, and all of them may be different from those in the core-release territory.
5. Anticipate that territories entering license agreements before a picture’s production is complete commonly purchase all that picture’s distribution rights within their territory. Territories that purchase distribution rights after a picture’s completion, however, may license each major rights window separately or in combination with other rights.

Each major territory distributor allied with a picture should participate in the production of that picture from its earliest development. The producer’s mantra to the major international distributors is the same as it is to those in the core market: “We will neither develop nor produce a motion picture that you are not committed to distribute.” This commitment and performance on a global basis allows producers to evaluate clearly the whole global dynamic of each project before financially significant development begins. It also allows the producer to sustain global marketplace integrity throughout development and production.

When a producer is passionate for a picture, there is a natural reluctance to accept negative comments about it. However, with potentially 70 percent of the audience and income coming from outside each project’s core territory, producers receive crucially important creative and business insights about their global audiences if they seek and receive counsel from their international distributor and/or ISA partners. Producers should at least understand each major territory’s response to every picture’s creative, audience, and earnings performance profile. Only when producers approach and receive responses from these major territory distributors or ISAs can they make accurate and informed judgments on “go” or “pass,” talent, and other creative decisions for their pictures.

Rarely will a producer gain unanimous consensus from all their international territory distributors relative to a picture’s creative, audience, or earnings ability. However, knowing each distributor’s position informs producers as to which distributors are potential presale licensees and allows them to adjust their license audience and income forecasts for those distributors who will be licensing after the picture has commenced production.

Each international territory has language and cultural peculiarities. However, it is thrilling to see the blending of global cultures. Entertainment is “a” if not “the” dominant influence driving this impact. Wireless handheld devices, social networks, apps, and increasingly powerful technologies will continue to deliver a more direct entertainment-based link between content providers and their audiences. Producers demonstrate integrity and receive significant business benefits when they are sensitive to the global cultures and peoples who are their largest combined audience. The wisest end game is to amp each picture’s creative, audience, and revenue performance.

Establishing New International Distribution Relationships

Engaging new relationships with each of the major international distributors is a natural part of the balanced producer’s operations. Chapter 14 discusses in detail a producer’s earliest development plan, which most often precedes the project’s final greenlight determination and includes distributor meetings in at least some of the leading international territories. This may be a producer’s first meeting with these distributors, but the producer and distributor may have already met during film industry events. Meetings with international distributors should be set at least four to six weeks in advance, as these executives typically have tight schedules.

In the first meeting, distributors expect the customary producer presentation. This presentation is usually focused on the creative aspect, leaving the distributor to consider in general, and if interested, perform most of the picture’s audience and comparable picture research and analysis work. Knowing this, producers should not be offended by distributors’ first-contact skepticism or lack of enthusiasm.

Being prepared by doing the pre-meeting prep work discussed in Chapters 1, 2, and 14 will enable producers to speak to distributors’ greatest interests and advance the potential relationship for the project(s) presented. When distribution executives are teased with a project’s compelling story, know the project’s target audiences, and have live evidence of the project’s campaign to sell these audiences—they then have the information most needed to measure if their early involvement with the project interests them.

Distributors who have an initial distribution interest in the picture are given more creative, marketing, and business information, including the project’s schedule to complete its development, then its production and finally its major territory premier, typically 18 to 24 months in the future, if there is sufficient global interest in the project. As part of this information, the producer presents a production finance plan (see Chapter 6 and Figure 6.1) that usually includes one or more international pre-sales.

The objective of this initial meeting is not to have the distributor sign an agreement or even provide an unbinding letter of intent. Rather, the producer is establishing crucial parameters of the relationship. These include:

1. We (the producer) are convinced that you (the international distributor) are the ultimate distributor to release our picture in your territory.
2. We will continue to ready this picture as your fully funded development and production unit for this picture.
3. If you are not interested in distributing this picture, we are not inclined to proceed with its development. In fact, if this distributor is not interested in releasing the picture because it has a similar one already scheduled during that period, or for any other reason, the producer will likely approach a competing distributor in that territory. However, this distributor is the producer’s first choice because of its abilities as demonstrated by successful releases of other pictures that have similar target audiences, campaigns, and above-the-line talent.
4. We are proposing a best efforts, good faith, no obligation relationship.
5. We will include you, and you will assist us, in validating our continuing audience and marketing research for this picture in your territory.
6. We will continue to request your creative consultation throughout the major steps of this project’s development and production.
7. We will exclusively communicate with you for all matters relating to this picture in your territory.
8. We will exclusively coordinate with you the press and advertising for this picture in your territory.
9. We will provide you with copies of all this picture’s promotion and advertising material for your use in promoting this picture during the various trade events in and outside your territory.

These parameters may seem simple and under-committal, but this is early in the relationship. The parameters allow prospective major market distributors, some of whom may eventually provide bankable agreements and/or advances, to consider their potential interest in releasing the picture in their territory, before serious relationship pressure. This is beneficial for producer and distributor. This early approach allows producers to receive distributor creative and marketing insights that often increase the value of the picture and avoid problems unique to their territory.

After the initial meetings with international distributors, producers should expect distributors who are interested to still be distant from committing to distribute, and even further from agreeing to engage in an equity stake in the project or pre-buy for a Minimum Guarantee (MG). Distributors should feel that the producer knows what is a professional business position for them and that the producer expects no commitments from the distributor at that stage.

Distributors will consider recent released, similar pictures and evaluate their performance in their market. Members of their teams will read the script, especially considering how it would best be sold in their territory, making notes for the producer. These distributors will especially be sensitive to the producer’s request for and response to their notes relative to director, cast, script, and how the project can be optimized for their market. Considering the most common prior-to-production relationship the majority of producers offer distributors, producers should expect distributors to be wary during their first meeting. So, producers should be candid and transparent in the types of relationship they hope the distributor will consider, but making them feel comfortable they understand what it will take for a distributor to engage any of these relationships.

Nurturing the Relationship

This process is wonderfully straightforward, though to the uninitiated, it may seem sophisticated. As with every new relationship, each time producers correspond, speak, and meet in person with their initially interested international distributors, they reassert their initial representations. They inform them of development progress and discuss the marketing and distribution preparations being made for the picture’s release in its home territory and the unique preparations being made and considered for the distributor’s territory. At each exchange, their relationship integrity naturally deepens, becoming more comfortable and confident.

The producer’s objective following the initial distributor meetings is to commit to the project’s full development. The producer confidentially notifies the core-territory distributor and each of the interested international territory distributors as to whether the producer has received sufficient distributor project interest and is proceeding, or not, to complete the project’s development. If proceeding, the producer also informs the distributors of the project’s projected trade and consumer press release announcements, teasers, and advertising during development.

In each successive touchpoint with these distributors, the producer reviews the list of open items, the project’s progress, provides fresh script drafts, discusses decisions being made, most importantly proposed directors and cast. The producer leads these discussions with how well or not the proposed directors and actors’ prior pictures performed in the distributor’s territory. A producer rarely chooses a director who is the unanimous first choice of all the distributors. Consequently, there are necessary meetings in which the producer shares the director’s vision for the picture, perhaps even bringing the director, some storyboards, animatic, and whatever else may lock the distributor’s confidence in the director. After this is accomplished, the producer next locks the director. The director is the tipping point to catalyze distributor confidence that the powerful, audience-worthy story will be extraordinarily well told, the lead cast will make the picture sing, the picture will at least meet its lowest earnings marks and may even have break-out potential.

After the producer successfully attaches the director, each of the distributors is immediately notified and given related announcement, promotion and advertising plans, in global trade and consumer press.

As each project’s development concludes, following months of interaction with its interested distributors, they will have become increasingly confident in the project’s value in their territory, and in the producer’s integrity and competence to deliver. Following scores of marketing, branding, development, and production meetings at least at the distributor’s offices and at one or more of the three annual international markets, producer and distributor should be prepared to agree on the unique relationship opportunities that are available before principal photography begins. Not long after the project begins production, the picture’s branding and marketing will begin, and the distributors should start in their territory as well, escalating until the project premiers.

International Territory Licenses

As is discussed more thoroughly in Chapter 6, balanced producers principally use bank financing to cash-flow the production of their pictures. Of the several collateral elements that enable each picture’s funding, presale licenses from one or more international territories should be considered. Producers should only offer presale relationships for pictures that are likely to exceptionally succeed in a given territory. Distributors will only consider entering presale relationships for project’s with powerful campaigns that are predictably appealing to large target audiences and that are helmed by an “A” list director and have one or more lead actors who are of star caliber in that territory. Therefore, it is crucially important for producer and distributor to work closely enough together throughout development, so they together discover if a project may provide a beneficial presale’s relationship.

As part of the final preproduction process, the producer performs a final participating distributor analysis and updates the financing plan with actuals that include presales, estimates/gap, equity, tax/rebate credits, and other soft and hard money sources.

Presale relationships are typically considered months before a project begins preproduction and closes weeks before. This allows distributors enough time to seriously value the project’s potential earnings in their territory, the predictability of its campaign, their distribution expenses, the release timing in relation to their other pictures, opening weekend competition, and their comfort in working with the producer.

Distributors for whom presale relationships may be beneficial can be offered substantial incentives to participate. First, the project becomes officially theirs and is no longer subject to competitive bidding and the distributor can begin earnest brand drive. Second, these distributors typically license all the project’s distribution rights in their territory. Third, the producer may offer a discount of the distributor’s MG. Before approaching each potential pre-buy licensees, producers should weigh if this discount will be necessary. As most international distributors are mature entertainment conglomerates, with equity ownership in projects and likely produce their own, they should also be considered for equity ownership—a conversation most appropriately broached before the presale negotiation and included in it.

The presale licensees typically advance producers 10 percent to 20 percent of the license fee upon signing the agreement and guarantee to remit the balance when they are delivered access to the completed picture’s elements and initial release window. Their guarantee becomes part of the producer’s bank financing collateral.

License Documentation

The Independent Film & Television Alliance (IFTA or “the Alliance”) operates the American Film Market (AFM). The Alliance has developed and continues to refine effective and high-demand international license resources for international producers, distributors, and ISAs. The Alliance has standardized international rights sales deal memos, licensing agreements, and delivery documentation. These documents are available for purchase from the Alliance by mail at 10850 Wilshire Blvd., 9th Floor, Los Angeles, California, 90024, United States; by phone at (310) 446-1000; or through its website at www.ifta-online.org.

The Alliance is a singularly responsible resource for independent producers. Most of the forms and instructions essential for carrying out the operational aspects of documenting and fulfilling international territory rights sales and delivery are available through this universally recognized organization.

Licenses’ terms are most often agreed to during a meeting of the parties representing the picture (licensor) and the distributor (licensee), and they are confirmed in the form of a deal memo soon thereafter. Deal memos are generally letters that set forth the basic agreed terms and typically provide for the other party’s confirming signature. Though there are license relationships that are bound without additional documentation, most sales are further documented by an actual license agreement that fully addresses all the terms and conditions relative to the license relationship.

The deal memo identifies the parties, the project or series being licensed, the territory or territories the license covers, the particular rights covered by the license, and the window length (term) for each.

Managing International Relationships

Though balanced producers will engage and sustain first-person relationships with the leading territories, for most producers this is not possible for the remaining international territories. A small, busy, in-house international sales staff or an ISA typically manages these other valuable relationships. This is a powerful and increasingly important area, worthy of each producer’s focus, accountability, and generous investment. The international sales department deserves the placement of a highly skilled, focused, and professional team.

A closely correlated relationship with a strong, compatible ISA can be a solid alternative to an in-house international sales department. There are many small, midsize, and large companies that effectively handle all other international distribution relationships and manage delivery and collections for all territories.

Distributors hope their independent producers will become regular suppliers of high-income, brand-distinguishing projects. It is important for these distributors to understand their producers’ five-year plans and the scope of their pictures in development. Regardless the quantity, distributors need to know. Knowledge of production plans significantly affects the value distributors attribute to each production company relationship.

As a producer’s project inventory increases, it is good business for producers to consider the library they are building, not just picture by picture but by the effect each new project has on their library value.

Chapter Postscript

Playing to global audiences is the focus of every smart producer. This is where the growth is, in project income, project funding and talent. Global audiences are primarily the middle class. The global middle class grew from 2.4 billion in 2011 to over 3 billion in 2016, a growth of 25 percent, and spending over $33 billion in that year. Analysts forecast that by 2021 the global middle class, entertainment’s most aggressive consumers, will be 4 billion. For the first time the middle class will be the majority of the global population.

It has never been more advantageous for producers to develop and produce their projects with their peak branding, release, and audience reception in at least those territories most apparently beneficial to the projects’ home territory, and with particular consideration to the leading international territories.

These producers and their projects are and will continue to be better received by international distributors and their audiences, play to more people and consistently return substantially higher earnings.

As a group, U.S. consumers outspend every other international audience in every distribution window. However, as the international dynamic continues to shift, so will the international middle class, especially in Asia’s territories. Technology will continue to enable the Internet as the most stable, economically beneficial for all, most immediate and operationally superior interactive entertainment delivery platform to all screens, saturating viewers around the world.

Producers sensitive to the continuing evolving international marketplace will optimize their projects for international audiences, deepen their alliances with international distributors and co-producing partners, and consequently broaden their brands as regular providers of projects worthy of their audiences and consistently profitable to all those responsible for bringing them to market.