Distribution of revenues between distributors and
producers
There are three models followed for the distribution of revenues between
the distributors and producers:
·
Minimum guarantee plus royalty model: In this model, the distributor shares any overflow of
revenues above the minimum guarantee fees, print and publicity costs, and his
commission with the producer in a pre-determined ratio. However, if the
distributor does not earn any overflow (i.e. the revenues earned by him are
lower than his costs), he has to bear the entire loss. This model is most
commonly followed in case of films produced by established producers and big
banner production houses. The overflow money, if any, is generally shared in
the ratio of 50:50 between the producer and the distributor.
·
Commission model: The distributor does not bear any risk in this model. He simply retains
a commission on the total amount collected from the exhibitor and remits the
rest to the producer. With film distributors losing heavily in recent years due
to the poor performance of films at the box office, the commission model is
increasingly gaining acceptance and being adopted by distributors, especially
for smaller budget films.
·
Outright sale model: The distributor purchases the entire rights for a territory or several
territories from the producer. In this model, the entire upside and the
downside arising from the purchase of rights are borne by the distributor.
Some film production houses (for example, Yash Raj Films) usually
distribute their films on their own. In such a case, while the risks are
higher, the gains are also higher.
Distribution of revenues between exhibitors and
distributors
There are four models followed for the distribution of revenues between
the distributors and exhibitors:
·
Theatre hire model: In this model, the entire risk of the film's box-office performance is
borne by the distributor. The exhibitor retains a fixed pre-determined amount
of the entire box office collections (net of entertainment tax and other local
body levies), and passes on the balance to the distributor.
·
Fixed hire model: This model is the opposite of the theatre hire model. In this model, the
distributor receives a fixed amount from the exhibitor, irrespective of the
fate of the film at the box office. Thus, the entire risk of the film's
box-office performance is borne by the exhibitor.
·
Minimum guarantee plus royalty model: In this model as well, the exhibitor bears the entire
risk arising on account of the box office performance of the film. The
exhibitor pays a minimum guaranteed amount, usually per week, to the
distributor. Net box office collections in excess of the minimum guaranteed
amount is shared between the distributor and exhibitor in a pre-determined
ratio. In case box office collections are lower than the minimum guaranteed
amount, the exhibitor bears the losses.
·
Revenue share model: In this model, the net box office collections (after deducting
entertainment taxes and local levies) are shared between the distributor and
the exhibitor in a pre-determined ratio. Thus, the risk of the box-office
performance of the film is also shared and both, the exhibitor and distributor,
bear the risk. The ratio in which exhibitors share net box office collections
with distributors keeps going down with time. Generally, the ratio is
48:52 (48 per cent of the collections are passed on to the distributor
and the exhibitor retains 52 per cent) in the first week of the release of a
movie, 35:65 in the second week, 25:75 in the third week, and if the movie
continues into the fourth week, 20 per cent of the net collections are given to
the distributor.
