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Film 101: The MG/Advance & Distribution Reporting

January 4, 2022

Welcome back and Happy New Year! I usually start the year with some look forward to the future, or questions about what might happen at Sundance. But this year, I'm diving right into the nitty gritty with another Film 101 article. I figure some of you might be hoping to make a distribution deal at Sundance, Slamdance or maybe later this year. The New Year is a time for wishful thinking, right!? So, this week, Film 101 is - the MG, and how you might understand how that is reported in your distributor's reports to you.

Your MG or minimum guarantee, also called an advance, is the money the distributor pays you up front, and in theory is just the minimum they are guaranteeing you will see in profits from your film. It is an advance payment against (possible) future payments. You, or your film’s LLC, will continue to see revenues as the distributor recoups their costs and start to pay you a share of the profits coming back to them (when they have broken even, more on this below). This is true, again in theory, but seldom happens (if ever). So, understanding the MG is pretty important. 
It’s also important to differentiate an MG or advance from a one-time license payment or fee. An MG implies the potential for future profits, a license fee is one and done for some term, and that’s how Netflix (and other streamers) almost always pay - $X amount for 10 years or some other term, and there are no implied or possible future revenues, no matter how well your film does for them. But for now, we’re going to focus on the MG and how you might get paid in that form of distribution deal.
The first thing to know about your MG is that the accounting against it starts immediately, if not sooner. When you go to celebrate your deal with your distributor over a glass of champagne, that glass will be an expense charged back to you, with interest and subject to a distribution fee, and it’s probably comingled with some other glasses of champagne served in your vicinity that night. I joke about this whenever I speak on this subject and people laugh. It isn’t funny, and it’s not an exaggeration. To me, it’s the simplest explanation of everything that happens next. You pay for something, plus a mark-up, and just “trust” that there’s a good reason for what you’re paying for, but it’s hidden a bit, because like a credit card, you don’t see the bill until later (if ever). 
The MG/Advance that’s paid to your film is paid over some period of time. This might be relatively instantly, when you close your deal, or it might be in installments over time. Most of this comes down to your sales agent negotiating good terms, and usually, you get it relatively quickly. But that payment is a recoupable expense for the distributor, and they charge interest on that payment. Every other expense they incur is also a recoupable expense. Whether they are making a DCP, utilizing the services of a publicist, flying to your premiere, buying your dinner at said premiere, or any other “P&A” cost, these will be charged back to your account. 
The distributor gets back revenue from exploiting your film’s rights (showing it in theaters, selling it to Netflix or Kanopy, etc.), and then recoups the costs it spent acquiring your film (that MG), the interest on that cost, and all P&A expenses. Well, actually, they get back all of those revenues, and then they deduct their distribution fee - which is a percentage of revenues, which might be one percentage across all revenues, or it might vary depending on source. For example, they might take 30% of all digital revenues, 50% of all theatrical and maybe 60% of all educational revenues. Those are made up numbers, and that percentage is something else your sales agent will negotiate on your behalf, in theory to the best of their abilities. Then they deduct all of those P&A expenses, and then your MG plus interest. If there is anything left over – the Net Profits - that money then gets paid to your film’s LLC. 
That payment of net profits may be set up so that 100% of it goes to you, or maybe some further split, like 50/50, or it might even have an incentive to the distributor to do well – like you get back 100% of net profits until you hit some magic number like $5M in profit, and then it splits to 80% to you and 20% to the distributor, which in theory incentivizes them to do a very good job. Again, this is all stuff your sales agent will negotiate for you when you make your sale.
Complicated? Very. And if you read closely, you might notice the secret to how distributor’s almost always come out ahead… their distribution fee. Their 30% (or greater) profit margin is locked in before they start to recoup expenses and it’s rare that any film makes more than that amount in extra profit, so most of those revenues stay in their pockets. There are rare exceptions. And no matter how you look at the numbers, a lot of money has to come back before you hit Net Profits and start to see any return to your film. To be fair to the distributors, they are taking on a lot of risk too – your film might tank, they might be ready to release it and a global pandemic hits, curtailing one big revenue stream for years. But for the most part, they know what their other films have done in terms of revenue, and they are basing what they pay for your film on what they know they can make back, and how much of that MG – and their fee – they can count on recouping before paying you any more money.
This is why a service deal – where you pay for everything up front, but keep more of the revenue – can be smarter. This is a longer story for a shorter post, but for now, the thing to remember is that you are paying for every aspect of your distribution. It’s only a question of when it comes out of your pocket. Up front? Or after the fact? Either way, it’s still coming out of your pocket, but because you aren’t laying down the Benjamins as needed, you might be fooled into thinking someone else is paying for X or Y expense. But they aren’t – you are. It’s just getting deducted from your revenues before it might get paid back to your film.
But that’s also the rub, and why many people take that MG and fight for getting as big of one as they can (instead of a lower MG with better terms, perhaps). Because so few films make back a profit, that the MG might be the only revenues you see from your film. And if you didn’t set aside the money to pay for your distribution via a service deal, your investors are going to want the sure thing, which is that advance or MG. 
Here's a simplified sample distribution report from a fake movie to show how this all works. These numbers are completely made up, and most reports would show the current reporting period vs. cumulative breakdown throughout, and probably have different distribution fees for different revenue sources, but that was hard to format for the newsletter.
Distributor XYXX Report
Every Movie, Everywhere, When Lucky

Revenue Source        Cumulative
Theatrical                   $1,000,000
TVOD                         $2,000,000
SVOD 1 License, Hulu $500,000
Nontheatrical               $50,000
TOTAL                         $3,550,000      
Distribution Fee 30%: $1,065,000
Expense           Cumulative
PR                    $60,000
Prints, DCPs    $50,000
Shipping          $25,000
Deliveries        $30,000
Marketing       $300,000
Misc                $50,000
Total:               $515,000
Total Cash Receipts (Cume): $3,550,000
Less Distribution Fee (Cume): $1,065,000
Less Total Expenses (Cume): $515,000
Net Cash Receipts: $1,970,000
Advance: $2,000,000
Interest: $120,000
Recouped (Unrecouped) Balance: ($150,000)
Net Due to Licensor at 100%: 0
In this hypothetical, the film has made some money for the distributor, but after deducting their expenses, their distribution fee, and recouping their advance plus interest, the film is in the red by $150,000. The film sees nothing back until this last $150K is recouped (which will be after those fees, etc.) Fun math, right? Well, it's usually not even as fun as those fake numbers above, to be honest. But hopefully, you'll do even better, and get that big MG for your film this year. Good luck!
This is the fourth installment of Film 101 in the newsletter. You can read about film acronyms here, about owning your destiny (the first of many posts to come on service deals) here, and about sales agents here. I’ve got dozens of these to write, but if there’s a topic you particularly want to see covered in the 101 threads, just drop me a line.

Stuff I'm Reading

How a Lack of Copyright Made It's a Wonderful Life the Biggest Xmas Movie: Well, that's not how the WSJ actually headlines this one, as they call it a "mistake," but it was the mistake that proves the flaws of copyright. In short, It's a Wonderful Life was a failure when it was released, but back then copyright for films expired after 28 years (it's now 95+ years) unless the copyright was renewed. Someone forgot, or didn't bother, and suddenly anyone could show the film for free. Which every network did, and slowly, the film became the Christmas movie everyone loves. This simply wouldn't have happened if the copyright had been renewed, which shows the upside of making copyright a more limited protection. (BN)

On the Other Hand, if you want to learn more about heavy-handed, over-zealous copyright expansion, read all about Disney and Mickey Mouse, and how they're gonna respond to the original Steamboat Willie copyright expiration, here (NYT). (BN) 

Funding Opportunity - Shifting Voices Film Fund: The CMP has just opened applications for their second cycle of the Shifting Voices Film Fund, an initiative to support BIPOC documentary filmmakers and their projects through granting, mentorship, and other resources. You can learn more about SVFF and apply by the January 31, 2023 deadline here

CMP is also hosting a free workshop on January 13, 2023 for all filmmakers looking to perfect
their grant application skills. Any and all applicants are encouraged to join. RSVP here. The Shifting Voices Fund is open to a variety of nonfiction stories and media developed by BIPOC creators across the United States -- more specifically documentary feature-length films (over 40 mins) that explore, dissect, and celebrate BIPOC perspectives and experiences. In particular, the fund aims to support stories that spotlight historically excluded cultures, history and experiences in America. While they welcome projects from all backgrounds, special attention will be paid to Chicago-based films and filmmakers. (BN)
Branded Content
BBC Storyworks Branded Content on Ethically Slippery Slope with China: It's not often that Deadline does investigative journalism, so something is behind this..., but they do have a good exposé on how BBC's branded content division, StoryWorks, has been taking a lot of money to promote stories from China state-sponsored agencies, and also from Huawei, which is under sanctions in both the US and the UK. Some of this is a big nothing-burger - all kinds of branded content divisions of news orgs take money to promote tourism, etc. But in this case, you could argue the move from the BBC to even have a division like StoryWorks (named so closely to its premiere strand, Storyville) is less about them following the branded content trend, and more about the UK Government pressing them to find alternate revenue streams, which leads to these kinds of partnerships, which leads to a perception (at minimum) of conflicts of interest with their news division. Lots to unpack here. Jake Kanter has the story for Deadline. (BN)

Netflix and Nike+ Training Club Launch Series: Talk about good branded content - but not storytelling - for the win! Netflix will launch 30 hours of training sessions for all kinds of workouts, brought to you with and by Nike+ Training Club. I think that's content that people will want to watch, and participate with, and a smart move for both brands. It's especially smart because it's not what you'd expect from either partner at first. Netflix has very few similar shows, if any, as most are story based in some way. Their Headspace shows are probably the closest precedent. And while Nike has other training programs, they haven't had them on TV (to my knowledge). And even though I am not a fan of Nike, nor do I trust them, this is something I'd watch and likely trust - expert fitness advice and training, it would seem. Smart all around. I could see some duplicate strategies from other brands, btw.  Peter White of Deadline has the news. (BN)

The Age of Infinite Entertainment: Everyone's worried about ChatGPT, Stable Diffusion and other Generative AI programs and their impact on artists and the arts. But there's a more fundamental shift happening, which most of these worries miss, but Ethan Kaplan captures well in this post, which is that we're entering the age of Infinite Entertainment. What's that? A version of participatory culture really, but one which Kaplan defines best as:

"Anything — and I mean anything — that can be distilled into data will be subject to recreation in an infinite stream of media. The implications for who owns the rights, who owns the rights to what aspects, who owns the media generated vs the training data to do the generation, and who owns the mathematics that the models were trained on; no matter what people say is all the Wild West.
The age of Infinite Entertainment is here.
Content will outlast the creators. The ability to create new content will continue long after the original artist has died. The technology will get good enough so that generated content will be indistinguishable from the originals."

And as he hints, this is just the beginning, and it's only gonna get wilder, and better, as we continue down this path. He's also right that artists should stop being worried about it and embrace it, before other folks, who care less about the implication for artists, do it for them/us. (BN)

Speaking of Infinite Entertainment, Lance Weiler's Annual List of 50+ Immersive Storytelling projects is Here. It's always a great place to discover projects you might have missed this year. (BN)

Gigi Sohn's Nomination to the FCC mIght start moving forward: Now that we have Warnock in the Senate, reports are coming out that some of Biden's stalled nominations might move forward, including that of Gigi Sohn to the FCC. This would be a great thing for consumers, because Sohn is one of the few folks in the business who knows what she's doing, and actually wants to make changes that benefit consumers. Which is not what the telecom companies want, especially not when they've had six years now (4 under Trump and 2 under Biden being stalled) to get zero regulatory pressure on anything they do. Karl Bode at TechDirt has the news. (BN)
GSH = Articles written by Sub-Genre's Gabriel Schillinger-Hyman, not Brian Newman (BN)
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