Distribution Deals: License, Monetize, Repeat

• Publication year: 2019
• Author: Jeremy M. Evans

Distribution Deals: License, Monetize, Repeat

Jeremy M. Evans

Jeremy M. Evans is the Founder & Managing Attorney at California Sports Lawyer®, representing entertainment, media, and sports clientele. Evans is an award-winning attorney and community leader based in Los Angeles. He can be reached at Jeremy@CSLlegal.com.

As a general matter, content creators would like to sell rights to distribute their content to multiple parties on multiple platforms, so as to increase revenue from various sales and transactions. On the other side of the negotiation table, licensees, distributors, and the like ("distributors") would prefer to own, license, or control more content for a lesser price, with an opt-out when the content is no longer selling (e.g., fewer eyes viewing content). These principles hold true for both live sports and entertainment content.

The balance between creator and distributor is decided in the negotiation, and the result is a distribution deal. Before we break down the essential elements of a distribution deal for entertainment, media, and sports content, we need to answer two questions: First, what is a distribution right? Second, what is a distribution deal?

Distribution Right

17 U.S. Code § 106, Exclusive rights in copyrighted works, provides that:

The owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

1. to reproduce the copyrighted work in copies or phonorecords;
2. to prepare derivative works based upon the copyrighted work;
3. to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending [bold emphasis added];
4. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
5. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
6. in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.¹

In addition to the rights with respect to reproduction, derivative works, performance, display, and digital audio transmissions (e.g., digital music distribution) specifically listed in § 106, the distribution right is an exclusive benefit of copyright owners. Content like sports broadcasts, television shows, films, and other types of media and entertainment is copyrightable, and, therefore, its owners have the exclusive distribution right of that content. Where there is an exclusive distribution right, the content must be licensed to be distributed (e.g., watched) legally. The distribution right therefore finds its strength in its ability to be monetized by contract.

Distribution Deal

Jonathan Perelman, Head of Digital Ventures at ICM Partners, once said, "[C]ontent is king, but distribution is queen and she wears the pants. It's not nearly enough to create a good piece of content. You have to understand how content spreads across the web."² That quote is the quintessential reason why content must have a great distribution partner, either through a traditional or an over-the-top model. In the article, "How Movie

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Distribution Works," the author³ provides the following insight to give context to Perelman's quote:

It has been said that making a movie is not nearly as difficult as getting it distributed. Because of the enormous amount of cost in money and time involved in distributing a movie, a distributor must feel confident that they can make a sufficient return on their investment. Having the backing of a major studio or a well-known director or star can greatly improve the chances of securing a good distribution deal. Independent filmmakers often use film festivals as an opportunity to get the attention of distributors. Once a distributor is interested in a film, the two parties arrive at a distribution agreement based on one of two financial models:

• Leasing
• Profit sharing

Under the leasing model, there is generally payment of a flat fee. Under the profit-sharing model, the distributor will get a percentage of revenues (10-50%) that is determined by an agreed-upon accounting model. In the movie business, some major studios have their own or preferred distributors. The benefit of an outside distributor is shared cost and, of course, the ability to focus on making content versus distributing content.⁴

Interestingly, on the traditional media side (think news services), creators have broadcasted and distributed content through distributors they own. The internet and YouTube have also helped with their distribution model, if they have been willing to adapt and change. In sports, leagues, conferences, or teams have used outside distributors because it has proven to be very expensive to license (and, therefore, for owners to cash in) when licensing the rights for a period of time. However, recently, some sports teams have thought to become their own distributors.⁵ In the entertainment realm, on the other hand, companies have fought at the negotiation table to buy each other to own and control the information distribution highways.⁶

Once the parties have agreed upon the content to be distributed, the method(s) of distribution, and the financial model of distribution, further negotiation and drafting of applicable terms and conditions will follow. Some of the provisions likely to be seen in a distribution deal include:

• terms and conditions of sale;
• term for which the contract is in effect;
• marketing rights [i.e., using trademarks in social media and messaging approvals];
• trademark licensing;
• geographical territory covered by the agreement;
• performance [e.g., definition determined by the parties as to obligations and delivery of content];
• reporting [i.e., including accounting and payment]; and
• circumstances under which the contract may be terminated.⁷

This list is not exhaustive, and distribution deals vary by industry and need. However...