Independently produced films and TV series generally work with a Recoupment Schedule for the allocation and distribution of revenues to multiple beneficiaries.

Each film or TV series is different in set-up, with its own unique production team and financing structure. Usually, production financing is put together from several separate sources which may include so called soft money, debt financing, equity investments, tax credit financing, or pre-sales.

Financiers of the project, together with sales agents, production partners, talent are amongst the beneficiaries of the project as they are entitled to a share of the revenues generated by domestic and international distribution of the film or TV series. Each of them negotiates separate deal terms with the production.

The Recoupment Schedule combines all such individual deal terms and makes the allocation and distribution of revenues to multiple beneficiaries manageable.

Although each Recoupment Schedule is unique, just like the project itself, there are some sets of entitlements payable from the Recoupment Schedule which can be put in categories. Also, there are certain rules of thumb and commonly accepted practices in putting a Recoupment Schedule together, and guidelines for manner and priority of allocation and disbursement of entitlements.

Below we will briefly discuss the most common categories of entitlements payable under the Recoupment Schedule.

Production Loans and Equity Investments

Independent movies usually get at least a part of or their full financing from external sources, like equity investments from film investors or production loans provided by a bank or private lenders. Without going into detail about the sorts of debt or equity financing, they all have in common that the financial contribution is being recouped by the financier from the revenues generated by the distribution of the project, together with interest or a return on investment.

Deferments, Box Office Bonuses and Profits payable to Talent

Individual producers, directors, writers and actors are usually referred to in the film business as Talent. Talent lawyers commonly negotiate deferred compensations for their clients payable from the revenues, apart from fixed compensations payable out of the production budget. Such deferred compensations can include producer fees, writer fees, or box office bonuses. Talent also shares in the net profits of the film or TV series.

The Sales Agent’s Distribution Expenses and Sales Commission

International distribution of an independent film or TV series is traditionally done through a sales agent. The sales agent sells the project to its buyers, the local distributors, and makes sure that the film is delivered. It also oversees payment by distributors of the agreed royalties (the purchase prices of the distribution rights of the project). Such royalties are, together with domestic distribution or any other sources, if applicable, the revenues.

Payment of Residuals to Guild-Members

If any of the actors, directors or writers involved in the film or TV production is a member of respectively the Screen Actors Guild (SAG-AFTRA), the Directors Guild of America (DGA) or the Writers Guild of America (WGA), together referred to as the Guilds, then Residuals are payable by the production company. If not paid from the budget and not assumed directly by a so called qualified distributor, Residuals are payable out of the revenues.

Co-Producers sharing in the Revenues

Several independent production companies may be involved in a film or TV production, for example of the project is an official co-production amongst two or more countries. They may have put equity in the project, or have otherwise contributed to the project. Each of these production companies or individual producers may be entitled to receive deferred producer fees from the revenues, and they may participate in net profits.

Recoupment Schedule: managing the Revenues

All these single rights to a share of the revenues, are combined in the project’s Recoupment Schedule. In the Recoupment Schedule, the parties jointly point out the manner and order of the entitlements payable from the revenues.

Priority of Entitlements in the Recoupment Schedule

The manner and order of payment of entitlements under the Recoupment Schedule entirely depend on what the producers and the other parties of interest negotiate amongst each other.

As mentioned before, each Recoupment Schedule is unique and tailor-made for a specific project. Having said that, there is a certain common practice as to how entitlements are prioritized. Below is a rough and generalized example of how a Recoupment Schedule might look like:

1. First, the collection account manager (CAM), is paid its commission and expenses for administering the revenues on behalf of the beneficiaries;
2. Second, residuals are due to the guild members, on behalf of the guilds;
3. Third, the international sales agent and domestic sales representatives are paid their sales commissions and the recouped their expenses incurred;
4. Forth, equity investors and private lenders recoup respectively their equity investments or loans;
5. Fifth, producers and talent are paid deferred fees and bonuses;
6. Sixth, if the film is bonded by a completion guarantor, the guarantor recoups any amounts advanced towards the production;
7. Seventh, once the production costs of the project is recouped in full, the project reached net profits and at this point, producers, financiers and talent are paid their profit participations.

If a bank provided a production loan, the bank recoups in first position and all revenues (except for maybe a corridor payable to the sales agent) go straight to the bank until the production loan is fully recouped. Other production lenders, not being banking institutions, might require a similar recoupment position.

Also important is to mention that, depending on the project’s specifics, there might be Sub-Recoupment Schedules per set of territories, or source of revenues.

Finally, it is essential that the Recoupment Schedule does not leave any room for interpretation.

The Collection Account Management Agreement

For the Recoupment schedule to have effect, it is essential to execute a collection account management agreement (CAM Agreement) amongst the parties which a major financial interest in the revenues of the film or TV project. The Recoupment Schedule is included in the CAM Agreement. It is furthermore important that the CAM Agreement supersedes all other individual agreements so that it becomes the only binding legal instrument with respect to the allocation and disbursement of revenues.

If you would like to know more about preparing and drafting a Recoupment Schedule for your film or TV projects, let’s connect here!