The Scary Fate of Pre-Sale Deposits
Once upon a time, there was a producer I knew who held onto his projects’ pre-sale deposits for almost five years, before a collection account company pried them from his grasp. Even though his projects (plural) never got made, he nonetheless felt entitled to hold onto his perpetually stalled films’ deposits.
It seriously pains me to think about how much foreign distributor cash is tied-up in projects that have stalled or fallen apart, due to financing, talent, legal, or some other issues.
Think about it….When a producer pre-sells a territory, the payment terms are generally: 20% deposit upon execution of the short-form sales agreement and 80% upon receipt of the Notice of Delivery (NOD). So, that means for all these delayed or problematic indie film projects, in all the different territories, in all the world that have received their 20% deposits while the buyers waits for their NOD…A WHOLE LOT OF CASH is being tied up, when it could be put to better use on other films. This can’t last!
When it comes to the fate of foreign presale deposits in packaging a film’s financing, foreign sales as an institution are not in jeopardy, but the terms and conditions for the standard 20% deposit from the foreign buyers is. I believe the 20% will become a lot more restrictive and a thing of the past for our “Once Upon a Time Producers” to hold onto. Justifiably so.
In this downturn, I have obviously started to see fewer projects getting financed (and more financed projects falling apart). But, I have also started to see buyers and distributors resisting putting up deposits for projects that are not demonstrably financed or have an imminent start date. I would like to see the buyers/distributors start using a ticking clock that compels refunding the 20% deposits after a year, or so.
On the flip side, it seems, buyers/distributors are starting to push their luck on the indie producers, by making demands like paying their balances 90 to 120 days after delivery, or upon video release in their territory, etc. This will incur significant interest costs and is an ROI killer.
Delaying deposits is good business, but delaying balance payments is not: money needs to be recouped quickly so more movies can be made. The hope lies with sales agents who are willing to hold the line against balance payments that aren’t bankable for the film’s finance plan.