Tuesday, December 2, 2014

Revenue, Royalties, Residuals, Recoupment in Indie Film - Oh My!

I'd like to talk about some of the R words that float around indie filmmaking. I deal with them a lot and they are a cause of great joy and also great stress. The four words that I often throw around are: Revenue, Royalties, Residuals and Recoupment.

These are good words as they mean your film is earning money. They can also be bad words as they are a ton of work to manage and as a producer,  it's your job to oversee them.

Revenue is the amount of money your film has made. Gross revenue is the total amount of money your film has made all around the world. Then there is the amount of revenue that your distributor(s) receives and the amount of revenue they pass down to you, which are called royalties. There are usually lots of hands in your film's till before money reach's a film's bank account. Oftentimes, your film will earn money and you will never see any of it. Scary, right? And definitely a major problem in indie filmmaking. How can an industry exist whereby the filmmakers who made the actual film see no money from the sales? It happens and it's wrong. The system needs fixing. That discussion is for another blog entry!

Royalties are payments made to the right's owner of the film by companies who license the film in order to earn revenue from it. For example, when you sign a deal with a distributor, it's usually for a certain timeframe. During that timeframe, said distributor may sell your film and earn revenue from it. They will then take their distribution fee, recoup their expenses, and write you a royalty check for what is left over. Basically, royalties are a percentage of the revenue earned by a distributor for your film.

Residuals are payments made to union hires on a film on sales to additional distribution avenues not covered in your original union contract. For example, when you hire a SAG actor, you are agreeing to a contract with SAG that states you are paying for an actor's service for a certain distribution avenue, i.e. theatrical, television or internet. Residuals come into play when you sell your film outside of that original distribution avenue. So if you tell SAG you are making this film for a theatrical release, you will not have to pay residuals on the money you earn from playing the film in theaters. The actor's salary covers that airing. But you will have to pay residuals on digital distribution on the internet as well as television and DVD sales.

Typical scenario on handling residuals: Residuals are calculated by the residual departments of the unions from the royalty statements sent to the production company (or the entity that is beholden to pay the residuals) by the distributor. The residual calculations are then reviewed by the production company and sent to a payroll company who calculates how much is owed to each union member. An invoice from the payroll company is sent back to the production company with the total residual amount owed. A check is then cut to the payroll company for the amount owed and the payroll company sends the checks for the union members to the union. If the union member is current on dues, he or she will receive the residual check. Bada bing bada boom.

Recoupment is what every producer and investor hopes for when making and/or investing in a film. Recoupment is when an investor starts getting his or her money back from the royalties earned on a film. This happens after the production company pays off all debt and deferrals. It doesn't typically happen right away or at once. The investor agreement usually states that royalty reports shall be sent to the investors along with any recoupment owed at that time a couple of times per year.

So let's look back over this procedure. You sign a contract with a distributor who sells your film. Revenue is earned and given to the distributor. The distributor takes a fee and recoups expenses and sends you any leftover money called royalties. From the royalties, you need to pay union residuals and then any debt or deferrals. Monies left over after all these commitments (minus some padding in your bank) is sent to investors for recoupment. Whew! That's a lot of work right? And it's multiple times per year.

That said, fellow indie producers, let's take a moment to pat ourselves on the back for overseeing union residuals, royalty statements, and royalty and deferral payments throughout each year on our films. This behind-the-scenes work lasts the life of the film (which we hope is the rest of our lives) and is a huge time commitment and most people have no clue we head this all up. They marvel at how checks end up in their mailbox.

Personally, I just wrapped payment of SAG residuals after 34 emails, dealing with invoices from SAG and the payroll company and providing proof of payment to our foreign sales agent so we could get reimbursed and a trip to the bank with the reimbursement. This took a couple of months and now I have to turn around and do it all over again.

This aforementioned work doesn't include royalty tracking and creating royalty statements and cutting checks to investors and crew for deferrals. That's a whole other set of reporting and check writing and overseeing.

While it makes me super happy to even be earning revenue, there are those days when managing all the Rs is overwhelming. This work is ongoing (happens throughout the year according to contractual terms), and no, I don't get paid to do this, and I handle it on three of my films at the moment. Yes, I'm wallowing. Some days I need to. #deepbreath #dayinlifeofindieproducer


Phantom of Pulp said...

I totally feel for you, Jane. Yes, great to get some checks, but the paperwork and labor to dispense it all is overwhelming.

Are there any companies that do this for a reasonable percentage? Who can handle this aspect?

Thanks for detailing your processes. Much appreciated.

janekk said...

I'm not aware of any companies who handle the paperwork etc. And if they did exist, we probably couldn't afford to outsource it. It all comes with the job of producing indies. The good thing is that it usually means your film is making money so that's the bright side!

Greg said...

I would love to see how our DashBook Royalty Pro software could be used to help you. If you send us the digital revenue and royalty reports you receive, along with the conditions on who to pay what percentages, we can figure out how to set this up to reduce your workload.