Domestic And Overseas Distribution Of Theatrical Rights And The Commercial Understanding Thereto - Broadcasting: Film, TV & Radio

INTRODUCTION

Every now and then we hear a film is getting released in theaters or is set to premier on television, or will be available for streaming on an OTT Platform. Pursuant to Section 2(d)(v) read with Section 14(d)(iii) of the Copyright Act, the Producer, being the owner of the Copyright in the Cinematograph Film, have the right to communicate the film to the public. Such communication of film can happen across various platforms, either through Theatrical release or non-theatrical releases like through Satellite Platforms (Television) or Digital/OTT platforms, etc.

This blog focuses on the distribution and exploitation of theatrical rights only, and the commercial understanding that the industry usually follows.

Theatrical rights facilitate the exhibition of a cinematograph film in theatres. These rights are granted by the Producers to the distributors through a License for a specified limited-term and for a defined territory.

Theatrical Distribution Rights mean the right to directly exhibit and communicate, through exhibitors, the Film in Digital Commercial Package in 2D and/or in E-print, to any audience which has paid or is deemed, pursuant to any legislation, to have paid for admission to such communication. It also includes the right to engage with exhibitors and market the Film as per the terms of the Agreement mutually decided and agreed upon between the Producer and the Distributor. It shall NOT include the right to exhibit or screen the Film in any places or venues outside the Licensed Theaters including but not limited to hotels, restaurants, bars, pubs, clubs, etc., and/or through any means NOT specifically licensed in the Agreement.

Theatrical Rights can be allowed in the local territory or may cover a greater area in the rest of the world-

In a domestic theatrical distribution, the rights to release the Film are provided in all parts or any selected parts of a country. For example, a movie released in India or a movie released in Maharashtra, Delhi, Rajasthan, and Andhra Pradesh only.
In an overseas theatrical distribution, the rights to release the Film in different parts of the world are provided, if the Producer chooses to screen the film in overseas market for a better reach and a greater commercial return.

LICENSING OF THEATRICAL RIGHTS

The Producer, being the Copyright Owner of the Cinematograph Film, will retain the ownership in the Cinematograph film and grant the distributor(s) a license (right) to distribute the cinematograph film only for the purpose of communicating the cinematograph film to the public in theaters, in exchange for a fixed amount ("License Fee"). The distributor would then enter into another agreement with one or more exhibitors (PVR, INOX, etc.) across India and overseas, who would be exhibiting and exploiting the theatrical rights in the film. In that case, the distributor will sub-license the right to communicate the film to the concerned exhibitors, hence, it will be important for the Producer to grant the distributor the license as well as the right to sub-license the said film to the exhibitors. These rights can be granted to the distributor usually for a shorter/limited period after the production of the said film has been completed. The distributor then grants the exhibition and exploitation rights to the exhibitor, via a sub-license, for a limited period of say 8 to 12 weeks, but it is a separate agreement per se.

The Producer (Licensor) can grant either, exclusive or non-exclusive license for exploitation of theatrical rights, to the distributor (Licensee), depending on the arrangement between the parties and the negotiations that follow.

Exclusive License: The Producer provides the licensee the right to distribute and "communicate the film to the public in theaters" to the exclusion of all other distributors, including the licensor, in a defined territory, which will be India and overseas. It is important to specify the exact locations (country, province/state, city) to avoid any over-spilling. The Producer cannot themselves use this right nor can license it to other distributors during the term of the license agreement. The licensee remains only the user of the said rights in the relevant market for that term. Exclusive license is generally granted when a distributor has a bandwidth and capacity to exploit the Film in India as well as overseas.
Non-Exclusive License: The Producer grants two or more licensees the right to distribute and "communicate the film to the public in theaters" according to the license agreement in a defined territory. Say, one distributor may undertake to exhibit the film in India and in some countries overseas (say, China and Japan), and at the same time, the other distributor may undertake the exploitation of the theatrical rights in the said film in other territories, except the territories covered by first distributor (say, France and Canada, but not China and Japan).

The Distributor usually demands 'exclusive rights' over the theatrical rights of the said film, if he/she has a huge distribution channel and network, both in India and overseas, to prevent their competitors (other distributors) from exploiting these rights, during the licensed term. Exclusive rights to distribute a film helps the distributor in retaining the revenue with himself, as against being divided between multiple other distributors. Therefore, the standard practice is that the Producer grant one distributor the exclusive license for a defined period which may last until 8 to 12 weeks after the release of the movie, as eventually after some time, a newly released film would lose its value in theatres and people would not prefer to go to theatres for watching that released movies. After the expiry of the defined period, the Producer would prefer to distribute and communicate the film through non-theatrical avenues such as OTT platform, Television, etc., and hence, would grant satellite rights (for TV) or digital (OTT) rights in the movie to one or more TV channels and OTT platforms, as the case may be, for such distribution and communication of the movie to the public, which is an entirely separate deal.

It is important to note that only theatrical rights are licensed to the distributor, whether exclusively or non-exclusively. The producer would retain the satellite and digital rights in the cinematograph film, the IP rights in the film, the associated derivative rights, merchandising rights, promotional rights, etc., with him to exploit the same in the future.

Assignment of theatrical rights usually doesn't happen as it is not practically viable for both parties, but there is no legal restriction on the same. The producer would always want to exploit and monetize the film on other platforms after the movie has been taken down from the movie theatres, so he/she is likely not to assign those rights to the distributor.

Following rights are not granted to the Distributor

Right not to exhibit or screen the Film in any places or venues outside the Licensed Theaters including but not limited to hotels, restaurants, bars, pubs, clubs, etc., and/or through any means not specifically licensed in the Agreement.
Right to edit, modify or delete or authorize the edition, modification, or deletion of any and/or all of the scenes, songs, or any audio-visual components of the Film.
However, the Distributor shall have the right to modify the Film, only after the approval from the Producer and only to the extent required for the release of the said Film in accordance with the respective Censorship Laws of any and/or all of the Licensed Territory.
Right to reproduce any of the underlying works in the Cinematograph Film, including but not limited to, music, lyrics, story, script, or songs.
Rights in the casting, story, script, shooting, marketing, or any other production process relating to the Film.
Right to exploit the Film on any other platform, including but not limited to, Satellite (Television), Radio, Digital, OTT or Print media, during the Term of this Agreement or any time thereafter, across any and/or all of the territories of the world.
Right to produce other motion Pictures, sequels, remakes of the Picture, or any right to produce television series, mini-series, web programs, or other so-called ancillary rights, collectively referred to as the "Reserved Rights".

COMMERCIAL UNDERSTANDING FOR EXPLOITATION OF THEATRICAL RIGHTS

The following commercial understanding exists between the Parties in association with the said deal-

Fixed Fee/License Fee: It is the fixed monetary amount payable by the Licensee (Distributor) to the Licensor (Producer) in exchange for acquiring the license to distribute and exploit the theatrical rights in the concerned Film. The Licensor is entitled to receive this amount irrespective of whether or not the Film does well at the box office. This amount is, practically, not equivalent to the amount spent by the Licensor on producing the Film (i.e., the budget), but is paid only as a consideration for procuring the theatrical rights in the Film, on either a monthly basis, or in tranches (installments) depending on the understanding between the Parties.
Refundable Advances (if any): The Licensee (Distributor) may give certain money in advance to the Licensor (Producer), over and above the License Fee, in the nature of a deposit. Such refundable advance may not be part of every such deal, but if it is part of any such deal, then it gives an additional assurance-
1. to the Licensor that the distributor is taking the deal seriously and approaching various exhibitors to get a beneficial deal for both of them; and
2. to the Licensee that there is enough trust and faith in the Film to do well at the box office.
At times, such refundable fee is paid for the purpose of qualification of certain conditions as agreed upon between the parties. On the fulfillment of such conditions, or if the Film does extremely well at the box office, this money is adjusted or set-off against any excess amount payable by the Licensor to the Licensee, or is refunded by the Licensor to the Licensee, in case there is no excess revenue generated, or no recoupment or adjustment of any amount takes place.
This refundable advance acts as a security deposit payable by the Licensee to the Licensor. The Licensor has the right to forfeit such deposit, in case of failure of any of the obligations by Licensee.
Operational Expenses; Distribution Expenses ["Allowable Distribution Expenses"]: Any expense incurred by the Licensee for the purpose of distribution of the concerned Film to the exhibitors, such as the print fee, or stamp duty, promotional expenses, or any other operational expense for ensuring the smooth and effective execution of this Agreement, on a daily basis, is included under the broader head of Allowable Distribution Expenses. These expenses have to be duly substantiated by the Licensee either through legitimate vouchers or through other documentation (receipts) as and must be pre-approved by the Licensor in writing. The Licensee is entitled to recover these expenses from the Licensor, at the stage of recoupment of the expenses incurred by the Licensee.
The term "Gross Revenues" refers to the total revenue or money received/receivable/accrued out of or from the exercise of the Licensed Rights in the Film by the Licensee. It shall also include any money payable by permitted sub-distributors including the non-refundable minimum guarantee amounts received from any such sub-distributors), and is also known as "Distributor's Share of Revenues".
The term "Gross Box Office Receipts" refers to the amount remaining after deducting the receipts of the Exhibitors (Exhibitors' share) from the gross revenue. In other words, it equals Gross Revenues 'minus' the exhibitor's share. The exhibitor is the final entity that communicates the film to the public in his/her theaters.
Recoupable Expenses
The term "Recoupable Expenses" shall mean all of the expenses incurred by the Licensee during the distribution of the Film, which the Licensee is entitled to recover under this Agreement, from the Gross Box Office Receipts. Such recoupable expenses will not include any of the Licensee's general office, overhead, legal or staff expenses, or any of the aforementioned Market Expenses. The Calculation of the Recoupable Expenses under this Agreement is made in the following manner, after deducting from the Gross Box Office Receipts, the following-
1. The Fixed Fee/ License Fee/ Minimum Guarantee Fee as defined and expressly mentioned under the Agreement;
2. Licensee's cut as Distributor's commission, which is around 10% to 12.5% of the Gross Box Office Receipts, and must be expressly mentioned under the Agreement;
3. Allowable Distribution Expenses;
4. Pre-approved expenses, if any, including taxes, collection costs, manufacturing or duplication costs, stamp duties, promotional/publicity expenses, as expressly defined in this Agreement, Delivery Expenses.
Overflows, if any: Any excess amount remaining after the Licensee has recouped all the expenses are known as overflows, which go to the Licensor.

HOLDBACKS

Holdbacks are restrictions imposed in respect of the exploitation/use of the rights (and NOT in respect of the transfer of rights) until a particular reasonable period, usually, by the Licensee in order to ensure that the exploitation of the Licensed Rights by the Licensee, during that period, is not interfered with, or is unhindered.

The holdbacks are discretionary restrictions, depending on the arrangement between the Parties. The purpose of carving out a holdback in respect of the Licensed Territories is to preserve the value of the concerned Film, and to prevent over-spilling or piracy, which would hamper the potential revenues that could have been otherwise generated by the Licensee, through the theatrical exploitation.

The Party on whom the Holdback would be imposed-

A holdback can be imposed on either party, depending on the arrangement entered into between them. Usually, a Licensee places a certain holdback on the Licensor, in order to preserve his own right of exploiting the Licensed Rights without any hindrance from a third party.

A holdback on the Licensee could also be placed by the Licensor in respect of the Rights licensed or granted to the Licensee under this agreement.

For instance, the following holdbacks may be relevant under this Agreement

At the instance of the Licensee (Distributor):

Theatrical rights in relation to the domestic and overseas exploitation of the Film may be exclusively granted to the Licensee in the Licensed Territories. The Licensor, in such case, shall be restricted from transferring any of the theatrical rights in the Licensed Territories to any third party engaged in the business of distributing and exploiting the cinematograph films in any of the Licensed Territories.
The Licensee may restrict the public exhibition and exploitation of the Film on any non-theatrical platforms, say, through the exploitation of Satellite Rights, Cable TV Rights, DTH Rights, Home Video [Home VOD] Rights, Pay Per View, Terrestrial, Catch Up TV, Free TV, On-Demand Rights, or through Digital and/or OTT platforms, including Transactional Video [TVOD] Rights, across the world, until the movie is still in theatres. This is because the Producer (Licensor) would not want to dilute the box office earnings by releasing the Film on non-theatrical platforms, while there is still an opportunity to generate revenues from theatrical release.

At the instance of the Licensor (Producer):

The licensor can restrict the exploitation of theatrical rights in any of the Licensed Territories overseas, i.e., outside India, until the expiry of a particular period, for instance, 7 to 15 days from the date of the release of the concerned Film in India. Such time period must be expressly specified in the Agreement.

PUBLICITY RIGHTS

The Distributor/Licensee is responsible for marketing and publicity of the Film to be released in theatres, so that the Film is a commercial success, and both parties can make the most of such commercial success. The Licensee can publicize the Film on various media/platforms, which has to be mutually decided between the Licensor and Licensee. Even the content to be used for marketing and promotions, the teaser and trailer to be shown in theatres or other platforms has to be planned by the parties together. Once everything is chalked out, the Licensee cannot alter, modify or change the publicity plan at any time during the Licensed Term without the prior written confirmation or consent of the Licensor. However, all the expenses towards the publicity of such a Film will be borne by the Licensor, and Licensee will not be entitled to recoup any such expenses later.

CONCLUSION

A Theatrical distribution agreement is one of the most significant agreements in the Entertainment Industry. In order to be able to showcase the film in theatres, the producer grants theatrical rights in a film, via a distribution license, to the distributor, who in turn arranges the terms and conditions with the exhibitors and theatre owners to display the concerned film to the public. Such rights are limited to territories and are granted for a limited time. The distributors in collaboration with the theatres and exhibitors plan a successful screening of the Film across the chosen territory. The terms must be drafted and negotiated very carefully so as to prevent any kind of overspilling or piracy of the film before the stated release date, or else, will impact the commercial exploitation of the film badly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

India: Domestic And Overseas Distribution Of Theatrical Rights And The Commercial Understanding Thereto