How Film Distribution Works ? What is Distributor Share ?

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

In the leasing model, the distributor agrees to pay a fixed amount for the rights to distribute the film. If the distributor and the studio have a profit-sharing relationship, on the other hand, the distributor gets a percentage (typically anywhere from 10 to 50 percent) of the net profits made from the movie. Both models can be good or bad, depending on how well a movie does at the box office. The goal of both the studio and the distribution company is to predict which model will benefit them the most.
Most of the major studios have their own distribution companies. For example, Yash Raj Studios owns Yash Raj Films. The obvious advantages of this are that it is very simple to set up a distribution deal and the parent company doesn’t have to share the profits with another company. The big problem is when an expensive movie is a flop — there’s no one else to share the costs. That’s the main reason several studios have partnered on major movies in recent years. For example, “Ra.One” is produced entirely by Red Chillies but distributed by Eros Entertainement Along With Red Chillies.
The next big step occurs once the distribution company has rights to the film. Most distributors not only provide the movie to theaters, but obtain ancillary rights to distribute the movie on VHS, DVD, cable and network TV. Other rights can include soundtrack CDs, posters, games, toys and other merchandising.
Distributor to Theatres
There are two ways for a theater to lease a movie:

• Bidding
• Percentage

Bidding requires that the theater agree to pay a fixed amount for the right to show the movie. For example, a theater might bid Rs. 50 Lakhs for a four-week engagement of a new movie. During that time, it could make 60 Lakhs for a profit of 10 Lakhs. Or it might take in only 40 Lakhs, which means the theater has a loss of 10 Lakhs. This Method is used by very less theatres nowadays. Most agreements are for a percentage of the box office (ticket sales).
In this sort of deal, the distributor and the theater agree to several terms:

• The theater negotiates the amount of the house allowance, or nut, with the distributor. This is a set figure to cover basic expenses each week.
• The percentage split for the net box office is set. This is the amount of box office left after the deduction of the house allowance.
• The percentage split for the gross box office is set.
• The length of engagement is set (typically four weeks & two Weeks for Minor Films).

The distributor will get the vast majority of the money made by the movie. The agreement gives the distributor the agreed-upon percentage of the net box office or gross box office, whichever is greater. The way this works is amazing!
Consider this example. PVR is negotiating with Eros Entertainment over Bodyguard. The theater has figured that expenses, the nut, are about 1.5 Lakhs per week. The net percentage to go to the distributor is set at 95 percent for the first two weeks, 90 percent for week three and 85 percent for the final week. The gross percentage to go to the distributor is set at 70 percent for the first two weeks, 60 percent for week three and 50 percent for the final week.

Gross Box Office = Total Money Which Comes From Ticket Sales
Nut = Running Costs
Net%  & Gross % Are Decided as Mentioned Above
Profit/Loss = Gross Box Office – Money Taken By Distributor – Nut

You can see that during weeks one, two and three, the gross percentage is higher. The net percentage is higher for week four. So the distributor would take gross percentage from week 1 to 3 three then net for week 4. The theater breaks even the first week, loses money the second and makes a profit on weeks three and four.

The movie itself is considered a loss leader by the theater owner: It is meant to get people into the theater. The theater makes its money selling refreshments to the movie audience. That’s why concessions are so expensive – without the profits generated by things like popcorn and pepsi, most theaters could not afford to stay in business.
At the end of the negotiated engagement, the theater pays the distributor its share of the box office earnings and returns the print. If a movie is very popular and can continue to draw a steady crowd, the theater may renegotiate to extend the lease agreement. Any time you see the phrase “Held over,” you know that the theater has extended the movie lease.
While first run movies that have just been released are loss leaders, movies that have been out for a while can be profitable for the theaters that show them. Second run theaters often get very attractive leasing terms from the distributor. These theaters are facing increasing competition though, as first run theaters continue to show more movies past the traditional four to six week time frame.