Q: I am about to sign an option agreement with some of Hollywood’s best independent producers. I wrote the screenplay with a WGA writer. I own the source material. The screenplay is based on my life story. I think I should be entitled to backend profits. The producers keep the international distribution rights and sell off the domestic. I don’t think I have a chance of the domestic profits but it is the international profits that this question is addressing.
A: The good news is you should be able to get some backend. The bad news is the backend you’ll be able to get will most likely amount to bupkis. But bupkis is still better than completely nothing.
It might seem like you have two pools of profits: the domestic profits and the international profits. But rather than dividing them geographically, for your purposes, it’s more illuminating to divide them according to who collects revenues: the domestic distributor’s profits and your independent producers’ profits. You should be able to negotiate a piece of both, even though you seem to think there is a fat chance on the domestic side. If you don’t ask, you don’t get — the first and only rule of negotiations (there are many other rules).
Let’s first look at the domestic “profits.” If your producers are actually able to sell the picture domestically to a studio, then the studio will distribute it domestically. Few state the obvious better than me. Domestic “profits” will be calculated by the studio as follows: revenues actually received by the studio (but with only 20% of DVD revenues included), less a healthy distribution fee, and less all costs (including advertising costs with overhead). This is a simplified formula, but it describes the big picture.
Of course, the profits we’re talking about are net profits. Net profits typically add up to less than $0. This is particularly true for studio net profits. And that’s why the reference to bupkis above. For a general, insightful review of backend, please see our net profits blog.
You should ask the producers for, and there is a chance you might get, a piece of the domestic distributor’s net profits. When (and if) the producers sell the movie to a studio, the studio will pick up their obligation to pay you your net profits. Typically, writers’ net profits range between 2.5% and 5%. In fact, if you were selling the script directly to a studio, you’d get your 2.5% or 5% of the studio’s standard net profits. Of course, there is a very good chance that net profits will never be achieved. But if the picture is inexpensive, does very well financially, and there are no huge stars getting a big chunk of the studio’s gross, there is a chance, a small chance, the picture just might reach net profits. Also, if the producers negotiate a producing backend for themselves, you might be able to get a piece of that or your own piece but using the producers’ definitions of “net profits” (the producers’ backend will likely be much better than any net profits you can get).
Now let’s look at the producers’ profits. It will be the producers’ production company who will calculate them. A typical formula will include all revenues actually received by the production company (obviously, all of the international revenues, but this should also include everything the studio will pay for the distribution of the film domestically) that remain after repaying the production loan and investors with interest and recouping all of production company’s other costs of development, production, and distribution. If anything is left, that’s the profits available for sharing. A writer could expect around 5% (and sometimes more) of that.
But what’s more important than any backend you might get is the cash you receive for the option, purchase price, and production bonuses. Except for signing this option agreement, everything else is a definite maybe. Nobody comes close to batting .300 in Hollywood, not even “Hollywood’s best independent producers.” And of the few projects that do get made only a small number generate net profits. So if you want to get paid for your script, source material, and life story, don’t put all your eggs in backend.
This blog was originally published as part of Legal Ease, Film Independent’s weekly column on legal matters pertaining to the entertainment industry. To see other LEGAL EASE columns please click here.