By Segun Aluko
Recently, some Nigerian film makers made headlines, not because of how well their movies are doing at the box office, but about the widespread piracy of their films. They alleged that some film marketers in Alaba market in Lagos, Nigeria are saboteurs of their works. Interestingly, there are businesses in Alaba and Onitsha markets which officially distribute and market entertainment content, mostly on DVDs. Nigerian music superstars have in fact made deals with these distributors by licensing the distribution right in their music.
Film is a copyright work protected under the Nigerian Copyright Act. Nigerian films will not only enjoy the protection of the Act but will do so abroad under the international copyright treaties. One of the rights protected under the copyright law is the right of the copyright owner to control, exclusively, the distribution of their work. The exploitation of this right and the transactions involved seem to be a missing link between film producers and the distributors.
The Nigerian film industry is no different from the independent film industry in United States and across the world with many producers belonging to an organization called the International Film and Television Alliance (IFTA). The independent film business is however a lot different from the studio film business, which process is built in-house. An independent film will always start with an idea from the producer. The producer will then set up an entity, usually a corporation or limited liability company, which will operate as the vehicle for the production and other business and legal affairs of the film. The process often starts with obtaining an option or outright acquisition of a literary right upon which the screenplay to the film will be based. This could be a movie right to a book, a news article, a movie (in terms of production of a prequel, sequel or spin-off), screenplay or even a television show, etc. The process then leads to financing which could be through equity investment or debt financing. Thereafter, it leads to production legal works including negotiating and drafting all necessary talent agreements, location agreements, music and other rights clearances, music composer agreement (if applicable), etc. If the movie gets through all these processes, then the independent producer will start looking for distribution.
The way distribution works for independent films could happen at either of these two stages: (i) financing or (ii) distribution. One of the ways for obtaining financing for independent film is through foreign pre-sales. This happens when the producer contacts sale agents and distributors in foreign territories to license the right to distribute the movie in those territories. The distribution right could be an “all-rights” deal or be limited to any of the following windows: theatrical, home video, hotels and in-flight, per-per-view, video on demand (VOD), electronic sell through (EST), etc. The producer will then obtain a minimum guarantee (that is, the license fee which will be an advance against gross receipts to be shared at negotiated percentages, e.g. 60/40) from the distributor for the distribution rights. The producer thereafter puts the pre-sale agreements with those minimum guarantees together and approaches a bank by tendering them as collateral for the production loan. The industry term for this is called “lending against the presale”. The bank will often lend about 30% of the production budget or 50% of the pre-sale guarantees.
The other instance of distribution will arise either during production or after production of the film. If a movie is already in place, you will likely find independent producers at international film markets like Sundance, Toronto or Cannes Film Festivals (or other film festivals in Europe, Asia and Africa) seeking distribution deals. Oftentimes subsidiaries or independent film divisions of major movie studios will be on hand seeking to acquire distribution rights to these movies. This could be an outright sale without any right to share in proceeds or a license with all the terms including profit sharing properly negotiated by the producer and the distributor. Instead of making rounds at film festival, the producer may approach a major studio or distribution company for a distribution deal. Why the studio? The major studios, which are based in United States, have proven to have the financial strength and requisite resources for the nationwide or worldwide marketing and distribution of movies. More so, the budget for distribution expenses covering print and advertising alone could run into $45 million. That doesn’t mean there are no distribution companies other than the studios in the distribution business.
Now let’s talk about how distribution deals could work in Nigeria towards reducing piracy.
In getting the distribution deal done, the producer will license the right to distribute the movie to the distributor. This right, like in a pre-sale deal, could also be an “all-rights” “throughout the universe” “in perpetuity” deal or it could be structured in a way to explore different rights in the movie. Oftentimes, independent producers will prefer to control different rights and explore those rights by licensing them to different distributors, in different territories and across different platforms. For example, the producer may license the theatrical right to the distributor for the sole purpose of distributing the movie across the theaters. The right could also be limited to different territories; for example, “the right to distribute the movie theatrically in the “Territory”. “Territory” shall mean the English speaking countries of West Africa, including but not limited to Nigeria, Ghana, English-speaking Cameroon, Liberia…””
Keep in mind that the licensed right will determine the value of the licensed fee. The licensed fee could be a fixed and final amount to be paid for the right to distribute or could be a minimum guarantee. A minimum guarantee is the minimum amount which the distributor pays to the producer for the distribution right as an advance against the producer’s share of net proceeds. This means that where the distributor pays the producer $200,000 for the distribution right of its movie in Africa as a minimum guarantee, the producer will get a base amount of $200,000 from the distributor whether or not the distributor distributes the movie within the Term. If the distributor distributes the movie, the distributor will be entitled to recoup the license fee, distribution fees (which is often about 25% of the gross proceeds), distribution costs and other expenses, which may include conversion/transmission costs, collection costs, guild payments of residuals and re-use fees, foreign version costs, reediting costs, physical material costs, royalties (for copyright works used in the movie), insurance costs, copyright registration costs, copyright infringement costs, claims and litigation costs, third party participation (where producer has negotiated assignment of this obligation to the distributor) and of course, print and advertising. The producer will then start to share with the distributor, at a negotiated percentage, in the net proceeds from the film distribution.
Although there are marketers, distributors and sales agents in Nigeria, it is however not clear if their business executives and attorneys understand the intricacies of the above business and legal affairs issues in structuring those distribution deals and how it can help to stem the tide of piracy in Nigeria. I believe that the Copyright Act, as it is, is a good regulatory framework which could cater to the piracy problem; however not from enforcement by the Nigerian Police Force or other government agencies. I believe business people and stakeholders in the media and entertainment industry could actually control how their works get out through distribution deals. Piracy thrives because demand of entertainment content far outweighs the supply. A way of fixing this is through distribution.
Film production is not cheap. Even the low budget movies are produced with the aim of making money through distribution. Since many of Nigerian distributors are based in Alaba and Onitsha markets, these distributors could either individually or through joint ventures (and I envisage that in order to do more, these companies may need to consider merger or acquisition of smaller distribution companies) license the distribution rights to these independent films. Since these Alaba and Onitsha market distributors will now have stake in these films, they will do their best to police the channels of distribution. They have the incentive to do this since they will be able to recoup copyright infringement costs and the producer’s attorneys can always negotiate a cap on those costs and the right to audit the books of the distribution company. With time, some of these distribution companies will either rise to the occasion to become major studios with all the financial and logistic resources. Just maybe sooner than we think, they will be able to release a blockbuster with lots of box office receipts.
How Distribution Deals Can End Film Piracy in Nigeria was originally published on his site and is being re-published on The3As Blog with permission from the author.
Other informative content on entertainment law by Segun: