Distribution Percentage

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bddv

Member
I have just completed a 30 minute video that focuses on domestic violence. We have taken the finished DVD to a Distribution company and they have a standard contract that they say they use for all submitted work. There were some things on the contract that we and the distributor agreed to change , (such as exclusive rights, etc.), but when it came to the question of royalties we were a little confused. The distributor wanted to pay 40% royalties. I thought that this was far to little so after some negotiation we got it up to 50%. This still seems ridiculously low to me but this is the first time I have used a distributor and I don't have anything to compare these rates to.

So, I wondered if anyone could shed a little tungsten on the subject. Am I being unreasonable and greedy expecting more? Is 50% a good figure in this business? If not , what should I be asking for?

Thanks ,

Tim Hodgson
 
First off, congratulations on finishing your project and getting to the distribution level. This is no small accomplishment. Now on to your question.

By the expression "50% royalties" are you indicating that they will pay you 50% of the list price on every disc that they sell or is it 50% of the selling price of every disc that they sell? Usually, the costs to the distributor are fixed (and based upon a negotiation process). Is this distributor taking title (and hence paying for) a specific quantity amount of inventory (quantity of discs) or do they only pay for what they sell?

Rather than look at the percentage, I would look at the minimum gross that they are committing to. This would give you an idea as to their level of commitment on the distribution. If they have nothing to loose if they don't sell, then they are less likely to make the effort (and expend the resources) to make for a successful marketing campaign.
 
OK, I'm not sure I understand ...

By the expression "50% royalties" are you indicating that they will pay you 50% of the list price on every disc that they sell or is it 50% of the selling price of every disc that they sell?​

Am I missing something or are they not the same thing??

The Distributor wanted a copy of the master to keep on file so that every time a copy was ordered they could just run off a copy. We would be paid 50% of the gross selling price which is $239.95. Therefore we get $120. This would be accumulated and paid to us quarterly.

I would not give them a master. I wanted to know what was selling and when so we have agreed that I keep the masters and when they need some copies for inventory, they can order them from me and I will ship them over to them. These copies are invoiced and shipped at $0.00 and we are paid when they sell.

It adds a bit of work to my part, but it's a small price to pay to keep the copies under control.

I understand your point about not having the same commitment if they haven't paid for them, but this is how this distributor works and they are quite a large outfit. I don't really have any reason to doubt there sincerety and commitment to selling the product ... I just don't want to find out after we have signed with them that we should have been getting 60 - 80 % in royalties. At the same time I don't want to sit there demanding 80% when the standard in the industry is 40%.

We have spent many intense months of work to come up with what we feel is an excellent product that will be a very popular subject and these people want half of the profits just for putting it in their catalogue !!! Somehow doesn't seem square to me, but if that is the norm in this type of situation then I'll just shutup and get on with he next project.

Thanks

Tim Hodgson
 
It sounds like a niche product that you have. Could you self distribute? What are the distributors actually doing for you apart from taking a massive cut? It doesn't sound like they are putting it on any shelves.
 
Sounds like you averted the #1 easiest way to get ripped off, which is to let them make as many copies as they want.

In essence you're establishing a reseller relationship with that distributor -- they're buying the product from you and then reselling it. In a normal reseller relationship of other types of products, they should expect a 25% to 40% margin, which means you'd sell it to them for 75% to 60% of retail. But then again, in a normal reseller relationship they'd actually be expected to buy it from you and actually pay for it, rather than you extending an indefinite loan to them (basically, in the type of arrangement you have with them, you're selling it to them "on consignment").

I'd say that as far as distribution deals go, you're actually doing rather well from a few fronts -- you're controlling all expenses because you're manufacturing the product, so you won't get billed for exorbitant overpriced artwork and replication and shipping and handling fees. And you're controlling the inventory flow, so you won't get robbed by unreported under-the-table duplication (unless, of course, the distrib just pirates your product anyway!) And you're controlling the expense issue since you're being paid a set, predictable amount per copy. If I were you, I'd try to establish the contract that way -- no clauses for expenses or any other hassles, just a set dollar figure (or set % discount) that they buy it from you at. Your distribution contract could be (and should be) as simple as this:

You will distribute my product on a nonexclusive basis; I am free to distribute it on my own in whatever way I see fit. Our entire business relationship consists of you having the right to buy copies of "title" for $120 each. Payment (or returned copies) are due within sixty days of placing the order.

Talk about keeping it simple. Then you're free to sell it on Amazon too. Amazon charges a 15% commission if you establish your own store ($39 monthly fee) or, if you have them do it on their own, I think they charge something like 55%.
 
The Amazon Advantage program that Barry mentioned (where they take 55%) works pretty well. I started moving a title via that program about 5 years ago. They order copies (1-2 times a month) and money is deposited in my bank account monthly.

One drawback to having anyone else distribute your product is: they may not move any product and there's not much you can do about it. So, non-exclusivity is very important. Or make sure there is a performance clause in the agreement.
 
I think quarterly is a long time between payments, considering it will likely be quarterly plus 30 or 60 days.. How about monthly if the total amount owed is more than $500 (pick a number)? How many do you expect to sell each month thru this company?
 
Thanks everyone for your input. It is just what I needed.

It's not a question of how many will sell per month. This video is resource material for training purposes and will sell well at certain times and quiet at other times, often dictated by clients budget timetables. So yes, quaterly plus 30-60 days seems to be a slow rotation but the product will continue to sell for the next 3 - 5 years so I don't think I have to be in too big a hurry for the cheques.

And yes, it is a niche product so one of the things we did change in the agreement is that we are able to sell the product ourselves through email campaigns and our website. Plus we only gave them Canadian distribution rights, not U.S. rights, ( even though they have an American subsiduary. )

All in all, I am satisfied with our agreement, I just wasn't sure of the royalty amount because of never having dealt with it before.

Thanks again guys for all of your input ...

Tim Hodgson
 
BDDV Prod. said:
So yes, quaterly plus 30-60 days seems to be a slow rotation but the product will continue to sell for the next 3 - 5 years so I don't think I have to be in too big a hurry for the cheques.
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I am not concerned about waiting so much as never getting paid. If they are sitting on 4-5 months of sales, what happens if they go out of business? What if you think they are not reporting accurate numbers or making their own pirate copies? What if some other dispute arises, or you just want to change distributors? What if they are even slower than 90 days plus 60 days in paying you? The more money they are holding, the bigger your risks are. The only good reason for a 90 day period IMHO is if amounts are small and they do not want to cut checks for $12 at a time. And maybe a big company like Amazon might do that just because they need standard policies that work for a wide range of producers. They can always hold back 2% or 5% or 10%for 90 days to cover returns, but this should only be for the first few months or year of the agreement, and depends on what your/their policy is on returns from customers.

Good luck though.
 
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