Entertainment rights management in the 21st Century has become increasingly fraught with complexity and difficulty in tracking valuable assets. As an entertainment attorney in the business of music, film and television, who has a reputation based on protecting and monetizing those rights, it has become a challenge for clients to keep track or even pursue all sources of economic return.
It is nothing short of finding a unicorn to sell a project to a single buyer and recoup, let alone receive profits. It is the norm for producers to license and sell rights to multiple buyers over several years worldwide in various formats to become whole on a project. And it has become more common for those producers to use multiple sales agents and distributors in different markets and territories.
Evolution of Film Rights
Historically a simple ledger could track a single film from its day and date of release theatrically, collecting data reported by theaters and managed by distributors, who were also studios in the first part of the 20th Century, from each movie theater. Most films were made to be released only or primarily in the country of origin in a single language. International distribution was minimal and initially only between countries using the same languages.
Films made in India stayed in India. Movies released for at least the first 70 years of the 20th Century stayed in movie houses for as long as they had to, often for months and even years, to recoup a film’s budget, marketing, and distribution expenses. Talent, other than producers, did not start sharing in the residuals of a successful film until the 1950s for film and the mid-1960s in television; only investors, production companies, studios, and distributors had a potential upside.
Movie theater owners shared substantially in a film's profits, keeping as much as 80% for the first two weeks of a release and then going to a 50-50 split. Today, theater houses generally keep only 40% for the life of a film in its theater and make most of their income from the sale of popcorn, candy, and soda, as ticket sale splits have radically changed in favor of distributors.
With the advent of television, which only became popular in the 1940s when middle-class people could afford to own one, films, for the first time, had a second window of profits. Namely, taking a film once seen in a theater and showing it on television. Rights holders were generally paid good money for a single broadcast, advertised as a special event, at a specific date and time.
After that, rights holders’ only hope beyond television screenings was a revival theatrical specialty screening, usually limited to a one-time occurrence or a limited run. Such screenings were generally big hits, or specifically because of a topic. For example, a full-length movie that featured deaf people might be shown to a charity or school focused on people with that disability, or a film about baseball might have a special screening for a children’s little league event.
Subtitles, Dubbed Films, and the Rise of International Distribution
Until the 1950s, beyond domestic theatrical screenings and television broadcasts, the only other rights to track involved secondary broadcast deals to cable television stations and screening and broadcasting films internationally (out of the country or territory’s place of origin). The concept of subtitling dates back to the late 1800s (before there was even sound) and was first patented in 1909 in a format we would recognize today. It wasn’t until the 1930s, though, and the advent of color films, that subtitled films that relayed word for word what the actor said on screen could be distributed using multiple languages and thereby shown worldwide.
In 1948 the first dubbed film, whereby an actor’s voice was replaced by someone else’s in a different language, was added to distributable film’s potential income stream from theatrical screenings and television broadcast sales.
Income from ticket sales and broadcast deals internationally were paid out monthly, quarterly, or bi-yearly, depending on the size of the film’s release in that country. Frequently there was a “buy-out” that allowed a larger sum to be paid upfront against those sales by the film's distributor in that country, potentially with allowances for overages if the box office exceeded a certain agreed-to amount.
The last innovation of the 20th Century was funding a film through sales of international rights before the film was even made through “pre-sales”, largely thought to have been first developed by film producer Mark Damon. This entailed pre-selling a movie for a sum certain to a specific country or territory internationally in exchange for a guaranteed exclusive distribution right to that film in that location when it was completed. Neither producers nor distributors knew how successful a film would be at the time of its release, so the amount paid was called a “minimum guarantee” based on how well the film performed. Other factors such as talent and genre, and if it did well theatrically in that territory, would see additional payments paid based on a predetermined formula for the box office returns.
All of these sales had to now be tracked both before the production of the film (to collect the advance against sales, usually underwritten by a bank or other lender that paid out 50% up front and 50% upon delivery of the film), and afterwards (to ensure that a well-performing film continued to pay out and pay up any agreed to overages).
Other rights ancillary to the direct distribution of a film or series include prequels, sequels, and remakes. While remakes can trace their way all the way back to the late 1800s, wide popularity and productions of prequels, sequels, and remakes first became popular in the 1970s with “Butch and Sundance: The Early Days” made in 1979. It is thought to be the first prequel after the release of “Butch Cassidy and the Sundance Kid” in 1969.
In any event, these ancillary rights, along with potential sales of songs and scores (sheet music, soundtrack albums, recorded music, etc.) and merchandising (posters, t-shirts, coffee mugs, etc.), all had to be tracked by producers or their distributors to keep the money train going. This was to recoup a film’s investors and potentially payout profits.
George Lucas’ film “Star Wars” in 1977 is certainly the first film to truly capitalize on the exploitation of all of these ancillary rights, perhaps changing the film and television industries forever, and thus the need for more intricate rights tracking systems.
The last innovation for film and television rights sales in the Twentieth Century was being able to rent and sell videos, which started in the early 1970s as a pay-to-rent system and then became a purchase for audiences to create personal libraries. Videos have been replaced over time with laserdiscs, DVDs, Blu-Rays, and today, 4K discs, and remain a lucrative, albeit lesser-used, way of making additional income from a project in the 21st Century. Today viewers can choose to rent or “buy” an unlimited watching of a single film from online stores such as Amazon, VUDU, Google, and Apple, to name but a few, and those companies will store that purchase for consumers.
Until the mid-1980s, before the wide use of computers, ledgers were used to track all of these rights for a single project, film or television, and film distributors kept such logs. It wasn’t easy for a producer to know where your film had actually been sold unless the distributor told you or made the sale directly to a buyer. Studios distributing films maintained their own set of ledgers.
There is a reason accountants, CPAs, and attorneys have often risen to CEO and President of the venerated studio system. Examples include Paramount, Columbia Pictures, Warner Brothers, MGM, United Artists, RKO, Disney, and 20th Century Fox. Columbia Pictures, specifically, was run by accountant Leo Jaffe from 1973-to 1981. He skillfully worked his way up because he understood how to track rights, collect and pay buyers on time.
By 1985, the computer program Excel was introduced as an online spreadsheet that could be personalized to track any data and customized to suit the users' needs. This was revolutionary, and tracking rights became a lot easier in the entertainment world. Imagine specifically setting up columns for each territory and for each kind of right sold, from theatrical to television broadcast to cable to international rights by territory, to sale of DVDs, and finally for all of those ancillaries. And that worked…for a while.
Current Entertainment Rights Tracking
Things have changed in the 21st Century with the advent of Over the Top (OTT) distribution, which entails any content obtained or distributed by means of the internet. It's as if the floodgates were opened to new kinds of distribution potential for a film or series. Technology changed everything, and user-friendly spreadsheets like Excel just have not been able to keep up.
Additional tracking is needed today for dozens, even hundreds of OTT sales around the globe as the international market became the majority rather than the minority of sales for most film and television products. Netflix has created a global market and invested in international content in foreign languages, and much to the surprise of the other studios and production companies, consumers love it.
Over the Top Distribution
Today OTTs such as Warner Brothers, Disney, HBO, Amazon Studios, and Apple are no longer trying to play catch up with Netflix. Instead, many of those original studios that owned all the great titles of the 20th Century can now provide rentals, sales, and viewer subscriptions of its content. And producers (through their distributors or directly) are paid from multiple OTTs, who license their projects.
The calculation, however, of how OTTs are paid out is a nightmare because they each do it differently. There are no industry standards for this. Some companies pay based on "clicks", another based on "views", and a third on total subscribers in a given period. And many of those OTTs have a hybrid of these models.
The Role Currencies Play
Currencies also play into all of this. As films and television content are sold globally in many different formats, payments are made in many world currencies. Collection agents are often used, such as Fintage House or Freeway, who collect money in Hungary, a tax-free country, and then pay it out to anyone entitled to the income. This can include distributors, producers, financiers, and talent who might also be entitled to bonuses or residual income once the film has recouped.
Tracking Entertainment Rights Today
Added to this complexity are new ancillaries that include digital games created from film and television shows, comic books and graphic novels, Broadway musicals and plays, and even brands that can be exploited in the global market and licensed to third parties. Even theatrical releases have become more multifaceted based on the type of technology used to exhibit a film, including standard 2D to 3D, 4D, RPX, Dolby, and IMAX. And ticket prices vary based on how a consumer determines to watch a film, even allowing watching such content digitally in one's own living room or on a computer while traveling.
How is a production company that's primary goal is to produce film and television supposed to track all of these rights, and ensure that the income is steadily flowing in from completed projects?
The Challenge for Production Companies
For major independent films, it takes conservatively upward of three (3) years to recoup after it is released worldwide. If a project continues to have viewers, it can easily be in the market earning income for decades as new audiences discover a film or series or older audiences rewatch.
Most of these production companies aren't set up to track income from rights or exploit all those rights. If they have given the project in its entirety to one sales agent or distributor, then auditing the sales and licensing deals also becomes a basic necessity to ensure that money continues to come in for each project.
There is also an issue of production companies selling its libraries to third parties, which means ownership must also be tracked to ensure that everyone entitled to income from a project is paid, even if the owner is a new company. Consolidation of film companies and bankruptcies, which occur regularly in the entertainment industries, has also created chaos for rights holders. Tracking entire libraries for all of the various rights and royalties for each project is a full-time job for multiple people, best handled by a single focused business that does nothing but track such rights.
So many production companies at all levels think they can do this themselves, building their own systems, but this simply isn't scalable on a global rights tracking level. Tracking has become too convoluted and resource-intensive for independent production companies, let alone single producers, to track the rights for a project, especially one that is successful when it's released.
21st Century Solutions for Entertainment Rights Tracking
Thankfully, a solution has emerged that can help production companies, distributors, sales agents, and anyone that is still on the payment ladder, such as investors and talent. Rights management companies have developed as the new and most important player to ensure that income to a film or series is being paid from the multiplicity of sources and on time.
This is the single focused task of rights management companies, each with its own unique skillsets and client base. The costs are not what one would expect, commensurate with a project's budget and distribution range. Many companies charge an initial setup fee, followed by a monthly amount to keep the system operational. This can be easily budgeted within a project from the start to make sure that it is available at the most important moment in the life of a film or series when income is coming into recoup.
It is also the best way to see what rights are still available to exploit from territory to territory and make sure infringement is not happening. As someone who has represented many investors over the years, I would not permit any production company to track rights on its own, knowing all too well that producers are onto their next project as soon as the last one wraps up and gets its distribution deal in place.
Moreover, every investor in a film should insist that these costs be part of a project and company's business plan. Producers should disclose this upfront to investors in their initial offering documents. Investors should split the fees proportionally yearly to ensure that rights are fully exploited, distribution is tracked, and money is collected.
Benefits of Media Rights Companies
What I like about handing over the media rights to a company that focuses only on the rights is that they do more than just spreadsheet what your IP is, who you're selling or licensing to, and what money is coming in. For example, FilmTrack, Inc. also inputs all the contractual commitments to ensure that deadlines are met and that people and companies who are due money from a project are getting it timely.
FilmTrack works with production companies at every end of the spectrum, from established A-list independent companies to smaller entities venturing into their first worldwide distribution deal. They use a sliding scale based on the scope of the film's distribution plan and complexity of the deal. They also have a brand licensing manager that allows you to monetize the brands producers have spent years creating, opening up new opportunities for exploitation and recoupment.
Statistics are also valuable things to understand the success of a given project. FilmTrack connects production companies to many other sources that help producers from making mistakes twice and allows them to repeat something they've done right.
6 Ways to Select a Media Rights Company
How does a production company source the right company to help it track its rights?
1) Demo the Software
First, of course, set up a meeting with a team, and ensure you get a solid demonstration of the software before engaging them.
2) Get References
Second, get references. In my own research for this article and clients, I found many companies professing to be rights management companies that were really acting as both sales agents and distributors. This is an outright conflict of interest from a production company’s perspective and should be completely separate.
3) Ethical Relationships
Third, rights management companies should be able to guide you away from sales agents and distributors who do not ultimately deliver what they promise. Those sales agents and distributors should be grateful to have a rights management company tracking the rights and income of the film. It is also not uncommon for a sales agent, or even a production company that owns rights, to lose track of its many buyers and what they owe including deadlines for payments. Careful IP tracking can avoid such calamities, which are fraught with potential litigation.
4) Contractual Obligations
Fourth, rights management tracks contractual obligations to ensure that no future lawsuits or potential liability are weighing down the income of a film or series. You can be sure that Scarlett Johansson and her representation were well acquainted with her contract to receive residuals from Disney for her performance in "Black Widow" last year. When the film was released differently than agreed, it potentially resulted in less profits to the actress.
Rights management companies ensure that production companies know exactly what they're supposed to do contractually to avoid such a dispute. While that matter seemingly settled quickly because of star power, production companies need to be able to avert such public disputes as they simply don't have the funding or manpower to engage in lawsuits. It is better to understand what's been promised and either deliver or renegotiate before issues arise.
Fifth, transparency is key in distributing a project. While it is hard to get from some of the biggest distributors, having a rights management company on your team that handles many titles will help. That relationship can provide information to the producers and rights holders they would never have accessed themselves, which in turn leads to a better understanding of where a project is selling best, including what types of audiences and which territories.
Finally, look for a company that helps build flexibility into rights management, allowing new revenue streams from new distribution sources when they arise, or changes to an existing practice within the industry or a single company occur, so that it can update the system in a timely fashion. Disruptions to the industry are not uncommon, and production companies should look for a rights management team that is on top of all that and can make adjustments accordingly.
Managing Entertainment Rights Now
It is complicated to track intellectual property with its many assets in the film and television industries, and many production companies leave money on the table by not keeping up. It is imperative in the 21st century for production companies and distributors alike to use a rights management company, making this a best practice standard in the industry.
Most films and series bring in less for single rights deals thanks to fewer and shorter theatrical releases, far more products for consumers to choose from, and because of technology, which makes production cheaper, but also ensures it is harder to protect the IP globally in the digital world.
Production companies are not competing just with getting consumers to watch currently released films and series; they are competing with the history of cinema and television, most of which are available to be viewed worldwide. This affects a project's income streams, making rights management necessary to maximize profits and avoid unnecessary losses and lawsuits.
About Vinca Jarrett
Vinca Jarrett is an entertainment attorney and president of FilmPro Finance, a financial consulting service for investors, start-ups, and production companies funding new ventures in the media space.
Vinca co-chaired the prestigious Bloomberg International Film & TV Finance Summit for over a decade, appearing as a Key Note, Featured Speaker, and Moderator at events around the world. She has appeared on Fox Business News, CBS, and NPR's All Things Considered as an expert on film and television finance, tax credits, and legal rights issues. Films have included The Fourth Kind, The Perfect Game, The Duchess of Cancun, and Feast of the Seven Fishes, along with financing of studio projects including Die Hard 4, Aliens vs. Predators, and The Day the Earth Stood Still.
Copyright 2022 Vinca Jarrett, Esq. This article is being distributed by FilmTrack with permission of the author. FilmTrack is an RBC Company and subsidiary of City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada.
*Vinca Jarrett is an independent writer and is not associated or affiliated with FilmTrack. The information and opinions expressed in this piece are hers and not necessarily those of FilmTrack.