Negative Pickup Financing Contracts
Negative Pickup Financing Contracts allow film producers a way to procure financing for a motion picture. This method of financing can have downsides and producers do have the chance to lose a lot of creative control, financial latitude and profitability in the process. Major studios, production companies, and distributors will enter into a contract to state their rights and obligations to the film.
A Negative Pick up is a deal between an independent producer and a distribution company. The distribution company (usually a major studio) finances a project by paying a fixed sum. Negative Pick up deals also include a bank, lender or a private financier until the distributor accepts delivery of the negative and pays the sum.
Because of the three parties involved, the agreement should be structured and negotiated so the distributor cannot back out of the deal and avoid payment. If that happens, a lender is forced to foreclose on the picture and the producer is left with nothing.
Often, the independent producer and distributor are at odds: the independent producer wants to retain creative control and the distributor is thinking of investment and wants the final project to encompass marketable elements.
Areas of concern from distributors:
–Clear Titles: Independent producer’s obligation to acquire a clear chain of title. The independent producer MUST establish to full satisfaction of distributor it has acquired all the rights to MAKE and DISTRIBUTE the motion picture
–Cast & Crew: Producer must have distributor’s approval of principal participants in the film. Such as: director, writer, executive producer and leading cast members. This is often the case that the distributor demands pre-approval of the agreements with “profit” participants. “Profit” Participants often overlap with “Principal” Participants in which both categories have direct financial stake in the picture; hence, directly impacting adversely or not the distributor’s profitability or lack thereof.
–Contract: Distributors might demand to pre-approve the contracts with participants or vendors it is paying for. Hence, such payment by the distributor should be intelligent and prudent.
–Third Party Claims: The distributor also demands that the production company secure releases from third parties for any claims or encumbrances.
The purchase price of a film ranges from hundreds of thousands to millions of dollars. Often, the production company received 40-50% of the net profit. The production company is liable to pay directors, executive directors, stars (profit participants) out of its net profits.
Once the negative is received, the distributor becomes the sole owner of the film. They also own the copyright and obtain any rights imaginable now or later to exploitation of the motion picture. The distributor may retain the following rights, among others:
- The right to change the title of the picture
- The right to edit and further modify the picture to comply with some local censorship rules or regulations
- The right to intersperse the picture with advertisements for TV viewership
- The right to sequels, remakes
- The right to the soundtrack of the picture
- The right to merchandising
