When a distributor takes on the risk of a film by negotiating a pre-financing agreement with the producer they do so in exchange for the exclusive commercial rights of the film. Territoriality, exclusivity, and contractual freedom are essential to FIAD's members, esuring they are able to make a return on their investment in a high risk market. Without these principles in place, films will not get the promotion they deserve which would mean less circulation and less access to films, and in many cases the films themselves would not be made. This is why we are involved in various copyright debates at the European and international levels. Attempts to change copyright law without taking due consideration of the effect on the industry can have huge consequences for distributors.
Distributors are also adversely affected by the increase in piracy in the digital age. Piracy is a constant threat to the industry, reducing the number of potential paying consumers and undermining the profitability of distributors' business models, thereby challenging the economic viability of an important sector. Nevertheless, FIAD recognises that piracy cannot be reduced by seeking out the individual downloaders. It is the internet service providers and platforms which are proliferating illegal use.
FIAD response to the consultation on the review of the EU copyright rules
Territoriality means that rights holders hold a distinct exclusive right in each country and have the contractual freedom to license it to different distribution channels. Territoriality contributes directly to the financing of, for example, feature films through the pre-sale of rights.
Films are risky investments, which involve very high fixed costs and unit production costs, as well as important marketing costs and therefore require the intervention of numerous players of different sizes and expertise along the value chain. At the development stage of a film it is a common practice for producers – or sales agents or local territorial distributors – to pre-sale rights to major television broadcasters, distributors/publishers by platform, language and/or territory as a way to obtain financing at a very early stage of the project. The pre-sale of rights makes it possible to cover high up-front production costs and often forms the collateral for a production loan from a bank.
Under a territorial pre-sales agreement, a distributor in a particular territory agrees to pay an advance against a negotiated royalty (or a flat price) upon completion and delivery of the film. Pre-sales are often associated with licensing on a territory-by-territory basis, as financial advances are secured against exclusive local distribution rights before the film enters into production. This exclusivity provides the distributor with the possibility of recoupment on each investment.
European funding is a vital source of revenue for what is a high risk and highly unpredictable market. Those funds do not only protect the audiovisual sector, but they are in effect a recognition of the economic and cultural importance of the industry.
FIAD has been a strong supporter of the current and previous versions of the Creative Europe Programme which provides an important source of financing for cross-border film production and distribution.
FIAD's members are currently in a reflection stage for the new 2020 programme,
The current business model used by distributors is based on release windows. Distributors sell rights in a specific chronology. For example the majority of films are shown in the cinema first, followed by DVD, online and then TV. Each window has a specific duration designed to ensure the maximum number of people have access to an important cultural and creative experience.
FIAD maintains that this current business model is the most efficient and effective means of distribution. Cinemas are the most important window where the majority of marketing takes place. The success of a film in the cinema has important spillover effects into the following windows. Attempts to overhaul release windows can therefore have negative consequences on the industry. The market is best place to assess which business models are the most effective which is why FIAD proposes that the decision should be left to the market.
The production and distribution of films is a high risk activity and it is very difficult to guarantee success. Only 1 in 10 films are successful which means a return on investment is not always guaranteed. With such high risk the incentive to produce a film is low. However, distributors play a significant role in encouraging production by taking on some of the risk through pre-sales.
Despite sharing the fianncing of a film the level of risk taken on by both producers and distributors is still significantly high which is why State aid is such a vital source of funding. State aid alleviates the risk producers and distributors take on thereby encouraging the production and distribution of films throughout Europe.
FIAD support aid schemes which recognise the high risk involved in the sector and provide adequate support for producers and distributors. Adequate funding from national governments leads to a greater diversity of offers, economic growth and jobs creation, and enhances cultural diversity in Europe.