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Indian Film Overseas Distribution Contract Law has been defined in a number of ways. Before reading further let us thinks how we can define this, for our purpose, Law is a system of limitations imposed by the government upon our actions in order to ensure safety predictability and control The purpose of this case study is to introduce concepts involving the overseas distribution of Indian films.
Contracts Contracts are one of the important aspects of law, contracts are voluntary , binding agreements people or business enter in to in order to obtain something to which they are not otherwise entitled. For instance, if both the parties wish to obtain cleaning equipment, they would not be entitled to get it from a supplier simply because they want it, Rather they must negotiate with the equipment dealer to allow the purchase, agree on the terms, and in exchange, pay an agreed price. A and B are entering in to agreement to obtain something they would not otherwise be entitled to receive. The agreement, if it meets all necessary requirements, is called a Contract. A Contract must be supported by consideration. Consideration is a bargained -for legal detriment exchanged between the parties.
Failure of one of the parties to the contract to perform as agreed results in breach of contract for which money or other remedies may be decided by a court. Those who breach a contract must be willing to pay the cost of doing so. Generally, that means putting the non-breaching party in the position that party would have been in has there been no breach.
Assuming 4 STAR INC have been looking to expand in to the international market place both by taking rights for exporting Indian films around overseas and by offering their services to other countries. This study mainly focuses on knowing the ways of conducting international business by following international rules and regulations which they will encounter in conducting business in overseas market Introduction:- Most successful Indian film producers seek to expand their markets as 45% of Indian population lives outside the India and their option is to expand in to the international marketplace. If V4U Enterprises have been successful in this country, the next logical step would be to increase profits by expanding their distribution market.
Selling the rights on the international market involves more than just shipping that product to another country. Distribution of Indian market to another country requires their knowledge of export regulations. However there is more involved than knowledge of export regulations. Whether a company dealings are with a large multinational enterprise( for which there are special consideration covered in this case study) or a relatively small business, competition for international dollars has enactment of rules and regulations that attempt to ensure that only companies that meet international standards for quality can be involved in international Business. If 4 Star Inc are to compete, then on the international market, those quality standard must become part of their daily operations of the business Quality Standards the world agrees on.
In American business there’s a quickening interest in the series of international standards known as ISO9000. More and more firms have come to realise that meeting those standards not only can ease entry in to the export market but can lead to significant cost savings.
ISO 9000 certification signifies that a company has fully documented its quality -control procedures whatever they are, and is abiding by them. It brings the savings by sharply reducing the need for quality audits and inspection of incoming products. “ISO keeps employees involved and aware” reports Tim Barry of American Saw, “andISO has been a major marketing advantage. We’ve picked up a bundle of new clients in the US and Europe.
To give Understanding of the choice available to this study presents the traditional business aspects of international Law, as well as the emerging multicultural Considerations connected with doing business across geographic boundaries.
Managing rights in a booming industry According to the case of Shardul Thacker of Mulla & Mulla & Craigie Blunt & Caroe gives the study of various sectors of the media industry in India, and explains the laws regulating ownership and IP protection.
The Indian entertainment industry is going through rapid changes. The opening up of the cable/satellite and radio sectors to private entities has made industry more vibrant. Based on market indicators, the entertainment industry generates revenue of $200 million and is expected to grow by $700 million by the year 2005.
Films The Indian film industry is changing from a non-organized sector into a corporate sector. In October 2000 the government accorded “industry” status to the film sector. The size of the films segment in terms of costs is around $28 million and the industry budget is increasing at about 10% per annum. This sector is expected to record a growth of 25% per annum to a size of about $88 million by 2005.
In India the films can be publicly exhibited only after certification from the Central Board of Film Certification as per the provisions contained in the Cinematograph Act 1952.
Foreign distributor can take rights of the films in India. The producer is required to observe all rules and regulations relating to import/export and foreign exchange in connection with the shooting of the film. The completed film has to be shown to a representative of the government of India in India or in an Indian Mission abroad before its release anywhere in the world.
Up to 100% foreign direct investment (FDI) is permitted in the film industry, which comprises film production, distribution, exhibition, marketing and associated activities relating to the industry. FDI is allowed in companies with an established track record in films, TV, music, finance and insurance having a minimum paid up capital of $10 million if it is the single largest equity shareholder and at least $5 million in other cases. The minimum level of foreign equity investment is $2.5 million for the single largest equity shareholder and $1million in other cases. Debt equity ratio should not be more than 1:1, that is domestic borrowings shall not exceed equity and also provisions of dividend balancing apply.
In June 2002, the Indian government announced a major change in policy –foreign direct investment of up to 26% in the print media sector would be permitted, overruling a recommendation by parliamentary committee that had recently voted against such a proposal.1 Only a few months ago, India’s entry at this year’s Oscars, Lagaan, drew worldwide critical and audience acclaim despite not winning.
In July, the blockbuster Hindi (India’s national language) film, Devdas, recovered70% of its production costs (estimated to be about INR 500 million, approximately US$10 million) even before it opened; significantly, the film’s overseas collections alone are expected to be about INR 200 million(roughly US$4 million). These three events, along with the well-received pavilion on Indian films at the Cannes film festival have focused foreign attention on one of the world’s largest entertainment and media industries. “Bollywood” (India’s Hollywood) has attracted foreign attention in the past. What appears different now is that foreign interest may at last be slowly translating into foreign investment in the broader Indian entertainment sector. However, the Indian film industry in particular is still some distance away from becoming truly international both in its structure and in its ability to attract foreign financing and investment. This article examines the applicable legal rules for foreign investment in the film, television, and media sectors in India. It also introduces a foreign reader to the broad structure of these industry sectors in India today. The article reviews the issues of financing of Indian film production, its future outlook, and the regulation of venture capital investment generally in the entertainment industry. As background, some basic features of India’s foreign investment regime are outlined.
Foreign Distribution of Indian Films and Distribution of Foreign Films in India The recent success of Devdas overseas has highlighted the commercial potential of Indian films abroad. With large expatriate Indian communities, the UK and the USA, in particular, have for some time been seen as good markets for the distribution and screening of Indian films. Increasingly however, Indian films are appealing to a wider non-Indian audience in these countries, thereby creating the accompanying commercial space for the exploitation of their potential overseas. This trend is likely to benefit foreign distributors seeking to cash in on the commercial opportunities that Indian films present abroad. A more immediate opportunity, however, for foreign studios is the market in India for Hollywood films, which has been growing steadily. One has to only look at the phenomenal success of Spiderman, distributed by Columbia Tri-Star with 230 prints in four Indian languages. 20th Century Fox and Columbia Tri-Star have become the first foreign players to establish Indian distributionoperations.13 These Hollywood film studios look set to take advantage of a recent relaxation in import restrictions on films into India, which reduces the time difference between the date of release of a film in the USA and its release inIndia.14 Under the earlier rules, films could only be imported into India under licence.
Foreign studios had also to submit favourable reviews of the imported films to the Indian customs department for inspection. Only after such customs clearance could the film be imported and submitted to the Indian censor board for review and certification for public screening.15 Under the new policy, films canbe imported without a licence, though they still need to be cleared thereafter by the censor board (in particular, for audience certification) before release and screening.
INTERNATIONAL DISTRIBUTION AGREEMENT (LOCALIZATION/REPRODUCTIONRIGHTS) V4U ENTERPRISES INTERACTIVE 4 STAR INC, a Michigan STAR E. MEDIA CORP., a UK corporation, doing business as corporation SCHOOL ZONE INTERACTIVE 1819 Industrial Drive 27171 Burbank Grand Haven, Michigan 49417 Foothill Ranch, CA 92610 (“V4UEnterprises”) (“4STARINC”) Attention: V4U Enterprises Attention: E.G. Amith Sharma Telephone No.: (616) 846-5030 Telephone No.: (949)581-9477 Fax No.: (616) 846-6181 Fax No.: (949)581-9957 E-mail Address: [email protected] E-mail Address: ______________________________________________________ V4U Enterprises is in the business of developing films abroad and related workbooks, including all legal rights (as hereinafter defined). Authorized in the business of localizing and distributing Indian film (Dharam) under Cultural Exchange Rules as prescribed by the law and 4 STAR wishes to obtain it, and V4U is willing to grant with certain limited rights.
V 4 U International develop a (as hereinafter defined) and to reproduce, sell market and distribute the Licensed Film on the terms and conditions set forth in this Agreement. Producers of 4 Star Inc assured that it has the facilities, personnel and expertise necessary to develop, reproduce, sell, market and distribute the Licensed Product in the Territory.
The following are the Context of this Agreement 1. Settlement Transactions–The independent producer and counsel should seek to contractually require the distributor (on behalf of the producer group and all other net profit participants) to in turn make a contractual demand in the distributor/exhibitor agreement that each exhibitor pay the full amount of film rentals to the distributor in specifically in accordance with the original terms of the distributor/exhibitor agreement, i.e., do not allow the distributor to settle for less than the contractual amount owed. This is apparently a fairly common practice among exhibitors and many distributors allow this to occur in an effort to maintain their on good relationship with the exhibitor. This one issue (clearly a conflict of interest for the distributor and possibly a violation ofthedistributor’s fiduciary duty to the producer and all other net profit participants) may account for a 10% to 30% reduction in the gross receipts revenue stream at this earliest and most critical stage.
Distributor Commercials– Provide that if the distributor receives a fee or any form of compensation for a distributor commercial, trailer or product placement, appearing before, after or during the producer’s feature film, the amount should be included in the distributor’s gross receipts.
No Gross Participants–Since in a negative pickup deal the independent producer will control this issue as opposed to the studio/financier, he or she should not allow any other individuals or entities to participate in gross receipts besides the distributor. This means that the producer will have to stand up to the agents and attorneys representing directors, actors, actresses and others who demand a gross profit participation. Allowing anyone to siphon off a percentage of the distributor’s gross receipts either at some defined level of pure, accountable or adjusted gross will substantially decrease the likelihood that any net profits will ever materialize.
Gross Receipts Exclusions–Again, since gross receipts to the distributor is the earliest and largest defined pool of monies in a motion picture’s revenue stream, any unreasonable effort by the distributor to exclude any revenues generated by the exploitation of the motion picture in all markets and media should be resisted.
The independent producer and his or her counsel should inquire of the distributor or investigate as to whether the distributor has an ownership interest in the videocassette manufacturer or wholesaler and thus will be twice participating in the home video revenue stream generated by the producer’s movie. If that is the case, the producer may want to ask that the distributor conduct its video sales on a sub-distribution fee basis as opposed to a royalty basis and to reduce the percentage of the sub-distribution fee. If the distributor insists on the royalty approach, the producer may want to ask that the royalty percentage be increased from the traditional 20% of the video wholesale price utilized by many of the major studio/distributors (which may be an example of “conscious parallelism” and possibly a violation of antitrust laws). In the alternative, the producer may attempt to negotiate a segregated gross video corridor, i.e., a specified percentage of the distributor’s gross receipts resulting from the exploitation of the film in the home video market.
Third Party Participations; Seek to place a reasonable limit on the distributor’s discretion to adjust accounting records to compensate for a credit or loss incurred by a third party doing business with the distributor. Such adjustments can adversely affect the financial interests of net profit participants and result in a subtle form of cross-collateralization since they may cover more than one film.
Representations And Warranties; (c) OwnershipFilm Library–If the producer cannot get the distributor to agree that the producer owns the copyrights to the picture and that certain limited rights are merely being licensed to the distributor, the producer and counsel should seek to provide in the distribution agreement that any moneys generated from the sale or licensing of the picture as part of a film library will be included in the distributor’s gross receipts for purposes of calculating the interests of net profit participants.
Copyright:- Net Recoveries–While including any expenses incurred in litigating or defending against (a) any claims for unauthorized exhibition, distribution or other use of the film and/or (b) for any infringement, plagiarism or other interference by any party with the copyright of the film or (c) for breach of contract in connection with the distribution and/or exhibition of the film, many distributors will sometimes exclude from gross receipts all revenues on any related settlement, court judgment Errors And Omissions Insurance; Security Interest/Copyright Mortgage/Completion Bond; Guarantee– Be certain that the negative pickup distribution agreement includes a distributor guarantee that a specific sum of money will be paid to the producer upon delivery. The producer may then be able to assign this commitment to a production money lender. A distribution agreement without a guarantee will generally not serve as adequate collateral for a bank loan.
E&O Insurance– If the producer’s errors and omissions insurance coverage is expanded to include possible distributor error the distributor should be charged with its pro rata share of the premiums. Also, the distributor should not be allowed to withhold sums of money from distribution proceeds to pay for the anticipated expenses associated with claims covered by the E&O policy, unless there is a reasonable likelihood that such claims will exceed the limits of the insurance coverage.
Net Recoveries–While including any expenses incurred in litigating or defending against (a) any claims for unauthorized exhibition, distribution or other use of the film and/or (b) for any infringement, plagiarism or other interference by any party with the copyright of the film or (c) for breach of contract in connection with the distribution and/or exhibition of the film, many distributors will sometimes exclude from gross receipts all revenues on any related settlement, court judgment or decree. Certainly, if such expenses are deducted as a distribution expense, then the producer and other net profit participants should be allowed to benefit from any net recoveries. No Third Party Beneficiaries; “.(a) Discounts and Rebates–Do not allow the distributor to exclude the pro rated value of volume discounts or rebates from third party service providers or suppliers, e.g., film labs or advertising agencies. Without the feature film or films made available to the distributor by the producer and other profit participants, the distributor would not be in a position to either negotiate or receive such discounts or rebates.
Assignment; This Agreement shall not be assigned or otherwise transferred by either party in whole or in part, without the express prior written consent of the other party which shall not be unreasonably withheld.
Not withstanding the foregoing provision, Distribution V may freely assign or transfer to any Affiliated Company part or all of its rights and obligations under this Agreement subject to a prior written notice sent to the other party. For the purpose of this Agreement, “Affiliated company” shall mean any company where at least 50% (fifty percent) of the voting rights are or shall be at the time of the assignment, directly or indirectly controlled or owned by V Distributors, or any company controlling or owning directly or indirectly at the time of the assignment,directly or indirectly at least 50% of the voting rights by a companions=trolling or owning directly or indirectly at the time of the assignment, directly or indirectly at least 50% if the voting rights of V distributors.
Governing Law; This Agreement shall be governed by and shall be interpreted in accordance with the laws of International Film Distribution act under cultural Exchange Rules. All disputes between the parties in connection with or arising out of the existence, validity, construction, performance and termination of this agreement (or any terms thereof), which the parties are unable to resolve between themselves shall be finally settled by arbitration.
Prompt Payment– Other issues relating to gross receipt exclusions focus on when certain monies or included. For example, a distributor may seek to avoid any language in the distribution agreement which will obligate it to promptly include funds received for television and cable sales, but instead will allow itself to hold such funds until the actual play dates of the movie on such media. Sometimes this lag time, which allows the distributor to benefit from the use of such monies can be as much as one to two years. The producer should seek to limit the distributor’s ability to hold such payments and not include these funds in the net profit calculation.
Such funds should be included in gross receipts when received.
Overseas Rentals– Quite often the distribution agreement will provide that motion picture revenues earned by the exploitation of a film in a foreign country but not yet remitted to the distributor in U.S. dollars is excluded from distributor gross receipts, which in turn means that such monies are not included in any net profit calculation for any given accounting period. The producer should try to see that revenues under the control of the distributor but still in a foreign country are included in gross receipts for purposes of net profit calculations.
5. Distributor Expenses–Another set of problems is presented by the list of cost items that the distribution agreement defines as distribution expenses and which in turn are deductible from a specified level of gross receipts: (a) Foreign Taxes–Many foreign countries will levy some form of gross receipts, remittance or other tax on the exploitation of the film in their country. The distributors will seek to provide in the distribution agreement that the payment of such taxes constitute authorized deductions as distribution expenses. However, the distributor will also claim a U.S. tax credit for the payment of such taxes, which in reality were charged against the producer and other net profit participants (i.e., since such payments were deducted from distributor gross receipts as a distribution expense).
Thus, to the extent that the distributor actually pays any gross receipts, remittance or similar taxes in any foreign country based on the exhibition of the picture, the producer should not allow the distributor to deduct its payment of such taxes from the film’s gross receipts as a distribution expense.
(b) Anticipated Expenses–The distributor may seek to have the unlimited discretion to set aside monies out of the gross receipts revenue stream to pay for distribution expenses it anticipates in the future. The producer should seek to place a reasonable limit on the amounts that can be set aside as reserves by the distributor for such anticipated distributor expenses, otherwise, the distributor will be in a position to eliminate net profits for any given accounting period, merely by over-estimating future expenses.
Cap on Distribution Expenses–In addition to negotiating a specific commitment from the distributor with respect to the minimum expenditures for prints and advertising, it may also be in the producer’s best interests to seek a reasonable ceiling on the amount of money the distributor can spend in distributing the film (at least an upper limit beyond which the distributor cannot go without the approval of the producer). If not, the distributor may choose to spend more money than necessary to promote the film in its domestic theatrical release (buying a gross) in an effort to create more value in the subsequent video release where the distributor gets a better deal and has a better chance of making more money anyway. In the meantime, the producer and other net profit participants are so far in the hole because of the excessive expenditure of distribution funds in the domestic theatrical marketplace that no net profits will ever be realized.
Improperly Claimed Expenses–Build in some sort of penalty provision for improperly claimed expenses, e.g., distributor pays the auditor’s fees or puts back into the gross receipts revenue stream twice the amount wrongfully deducted. Without a penalty provision, distributors have less reason to be careful to avoid the “mistakes” that typically seem to work in their favor.
Incremental Bonuses–Negotiate a specified bonus for the producer group for every increment of film rentals or gross receipts that exceed agreed upon levels of revenue.
Net Receipts–If the distributor insists on deducting its distribution fees and distribution expenses (however defined) prior to any revenue sharing with the producer and or others, provide that the producer group receive 100% of net receipts (also sometimes called net profits or net proceeds) after the distributor has deducted its distribution fees and expenses.
Producer Audit Rights–Provide that the producer has broad auditing rights with respect to auditing the distributor’s distribution of the picture. Check with a profit participation audit firm in advance of signing the distribution agreement to determine what language in the distribution agreement would provide the auditor with the most freedom to conduct a useful audit. Also consider hiring the audit firm to review the distribution agreement before signing it. Provide that if amounts discovered by the auditor to be due the net profit participants exceed 10% of what was actually paid, the distributor must pay the auditor’s fees.
Sub-Distributor Fees–Clarify in the distribution agreement under what circumstances and in which markets the distributor will utilize the services of a sub-distributor.
To the extent that the distributor utilizes the services of a sub-distributor, see that such sub-distributor’s fees are paid by the distributor out of its distribution Fees and not in addition to its distribution fee. In other words, the distributor should not receive its full distribution fee for distribution services actually being handled by a sub-distributor and for which a sub-distributor also charges a distribution fee.
Foreign Sales–Provide that the distributor not effect outright sales or other flat fee arrangements of the picture in the top eight foreign theatrical markets, i.e., Japan, France, Germany, Britain/Ireland, Spain, Italy, Australia and Sweden. Those are the territories that may generate gross receipts for the distributor beyond the Guarantee.
Dues and Assessments Cap–Negotiate a cap on the payment of dues and assessments paid by the distributor to industry trade associations to which it belongs. Also, stipulate that such trade association dues are not to be used to defray the costs associated with lobbying activities that favor the major studio/distributor over the independent producers or that help defend antitrust actions against association member companies unless a similar dues deduction is set aside in a fund that may be claimed by a duly organized association of independent feature film producers who may also use such association dues (deducted from the gross receipts revenue stream generated by independently produced films) to help defray the costs associated with prosecuting such antitrust actions or lobbying activities favorable to independent producers.
Press Announcements And Previews; 13. Advertising Overhead–If an advertising overhead charge cannot be avoided altogether, negotiate for the payment of an actual pro rated overhead charge as opposed to an arbitrary percentage and if stuck with a percentage negotiate a flat dollar ceiling on such charges. A percentage has no relationship to the actual allocated overhead expense.
Artificial Breakeven–Establish an objective and mutually satisfactory definition of breakeven at some specified level of gross receipts in lieu of other forms of breakeven which may result in a rolling breakeven which is never achieved.
Assignment of Profit Participation Interest–Do not provide the distributor with a right of first refusal to acquire the net profit participant’s interest.
Make the net profit participation interest freely assignable, although in the event of multiple assignees, the distributor should be allowed to appoint a disbursing agent.
Controlled Theatre–Now that the U.S. Justice Department has relaxed its enforcement of the federal antitrust laws in the motion picture industry and is permitting vertical integration once again, if your distributor has an ownership interest in theatres and plans to exhibit the film at one or more of such theatres, you may want to consider negotiating for a reduced distribution fee in those theatres. After all, less work is involved in booking films and collecting rentals from a distributor owned theatre and the distributor will be participating in the exhibitor’s profits in addition to receiving its distribution fee.
Final Judgment–Eliminate any requirement that the producer has to reimburse the distributor for legal fees if the producer files a lawsuit against the distributor but fails to obtain a final judgment against the distributor. Most lawsuits are settled prior to “final judgment” and substantial legal fees may have been incurred.
Provide that both parties assume the burden of paying their own legal fees.
Offset Rights–Seek to place a reasonable limit on the distributor’s discretion to adjust accounting records to compensate for a credit or loss incurred by a third party doing business with the distributor. Such adjustments can adversely affect the financial interests of net profit participants and result in a subtle form of cross-collateralization since they may cover more than one film.
Residuals and Royalties Provision–Do not allow the distributor to shift the burden of making residual and royalty payments to the producer to be made out of the producer’s share of net profits. This arrangement puts the producer at a disadvantage vis a vis the other net profit participants.
Gross Floor–The distributors will negotiate a gross floor with the film’s exhibitors and most all of the picture’s other sub-licensees. Thus, it is only fair and reasonable that the distributor, in turn, allow the producer and other net profit participants to have a minimum level of backend participation (gross floor) in the distributor’s gross receipts regardless of the number or amount of distributor or other deductions from this segment of the picture’s revenue stream.
Language All documents under this agreement, the contract and any other contractual commercial and technical documents and notices, specifications, reports and communications shall be in the English Language.
Terms of Agreement:- Here with this agreement V4U enterprises and 4 Star Inc have executed this agreement to demonstrate their intent to be bound by its terms. The parties declare that this agreement constitutes their entire agreement and replace all of their prior negotiations, understanding and representations; each party has been encouraged and has the opportunity to obtain the advice of independent preofessionas including attorneys and accountants and each has made an independent decision to undertake the obligations set forth. If any term of this agreement is held to be unenforceable or invalid, such term may be modified to render it valid and enforceable. If modification cannot be made, the term will be deemed deleted and the remainder of the agreement will remain full force.
In witness Where of The parties intending to be bound hereby have caused this agreement to be executed by their duly authorized representatives, effective as on the date first above written.
Each party acknowledges that he or she has read and understood the terms of this agreement, accordingly sign below.
V 4 U DISTRIBUTION Date By signature 4 STAR INC Date By Signature Good luck! Conclusion:-
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