Introduction

The Motion Picture business is a mature industry with almost a century of customs and practices that have evolved over time.  A Motion Picture is made up of a bundle of rights that flow from copyright  in the writer’s and other creators’ work in the creation and development of the Motion Picture along with contractual rights and restrictions which are contained not only in writers’, actors’, directors’ , and producers’ and other key creative crew agreements, but also in long established and bitterly fought over rights contained in collective bargaining agreements with the guilds representing writers, actors, directors, and key crew that have also evolved over the past 70 or so years.

Moreover, since international licenses of Motion Pictures involving minimum guarantee payments for territorial rights are typically used as security and collateral for bank loans required to obtain Motion Picture production financing, financial institutions, talent guilds, and important creative personnel (such as A list stars and directors themselves) have had a major impact on the special terms, conditions, and restrictions that must be included in International Motion Picture Licensing Agreements in order to protect their often competing interests in the rights and revenue streams of Motion Pictures internationally.  These contracts, restrictions, customs, practices and traditions have resulted in the special and unique way Motion Pictures are customarily licensed into the international marketplace.

International Motion Picture License Agreements are typically entered into on a territory by territory basis. For example, a Motion Picture producer will separately license a Motion Picture in France, another separate license in Spain, another in Germany, another in the United Kingdom and so on. Sometimes, the territorial distributor in a particular territory will license all exhibition rights in and to the Motion Picture (i.e., Theatrical, Television, Video, Ships at Sea, Airlines, and Hotels, etc.). Other times different distributors or exhibitors in a particular territory will license rights separately. For example, a German television network might license all German free television rights, another German theatrical distributor might license all Theatrical, Video and Ancillary rights, and a different German Pay Television System might license all pay, cable, and satellite television rights. Each of said Licensees will be given certain “windows” within which they will be allowed to exhibit the licensed Motion Picture in its particular media. The License Term will generally range anywhere from a low of 1 to 5 years from availability or delivery of the Motion Picture in a particular Territory or media, to as high as 25 years from availability or delivery and even as high as in perpetuity. License Fees and payment terms are customarily vigorously negotiated and alternate structures and payments will be discussed below.

Typically, because Motion Picture producers aggressively protect their copyrights, copyrights are not granted under International Motion Picture License Agreements. Instead distribution, exhibition, public performance, and duplication rights under copyright are licensed to the territorial Licensee for a limited term.  Since Motion Pictures per se are not patentable, no patent rights are licensed. Trademark rights per se are generally not licensed under such Agreements either, (although the right to use the title of the Motion Picture is typically granted [and just as typically changed for language and cultural reasons], and the Licensor customarily requires the Licensee to retain the Licensor’s logo or name  in paid advertisements and in the main titles of the Motion Picture in all media of exploitation in the Licensed Territory). Since Motion Pictures historically have not been protected under trade secret principles, International Motion Picture Licensing Agreements rarely make reference to any licensing or reservation of trade secrets, inventions, or proprietary processes.

The following are typical basic license terms and conditions of International Motion Picture Licensing Agreements.

I. Basic License Terms

 A. Picture:  The Agreement will describe the particular Motion Picture licensed, the title,  and the key creative elements such as stars, director, writer, and producer.

 B. Territory: The Agreement will describe the country or territory to which the Motion  Picture is licensed.

 C. Agreement Term and License Period:

  1. Term: The Agreement will generally provide for an overall term of a number of   years from availability of certain delivery materials, actual delivery of the Motion    Picture, or the execution of the Agreement ranging from a low of 1-5 years to as    long as 25 years or in some cases in perpetuity.

  2. License Period: The Agreement may also provide for a specific License Period    for particular rights that are licensed under the Agreement.

(a). For example: Cinematic Rights (which for purposes of this outline includes Theatrical, Non-Theatrical, and Public Video exploitation) may be licensed for 6-12 months from initial Delivery of the Motion Picture or initial Theatrical Release of the Motion Picture. Video Rights (which for purposes of this outline includes Rental Home Video, Sell-Through Home Video, and Commercial Video) may be licensed for 5 years from initial Delivery, initial Theatrical release, or initial Video release. Pay TV rights may be licensed on a specific Pay TV system for 1-2  years commencing 1 year after the initial Theatrical release. Free TV Rights (which for purposes of this outline includes Terrestrial Free TV, Cable Free TV and Satellite Free TV) may be licensed on a specific TV station or network for 3 years commencing 2-3 years after initial Theatrical Release. Ancillary Rights (which for purposes of this outline includes Airlines, Ships at Sea, and Hotel exploitation rights) might be licensed for 2 years from initial Theatrical Release.

 D. Authorized Languages: The Agreement will generally specify which languages are  authorized under the License Agreement in the particular Territory. For example, a  license for the Territory of France will generally specify that its authorized language is  French. The License Agreement will also specify whether the various media are to be  licensed in dubbed versions or subtitled versions subject to the approval of the Licensor  for creative purposes as well as for insuring that all talent agreements have been complied  with.  It is also important to note that Licensors will typically require that copyright  ownership in all dubbed and subtitled versions of the Motion Picture be retained by the  Licensor, despite the fact that the Licensee may have arranged for, paid for, and  supervised the creation of any dubbed or subtitled versions of the Motion Picture.

 E. Release Requirements: The Agreement will also specify whether or not a Theatrical  release is required, at what time (for example, not later than 6 months after Delivery) the  Theatrical release is required to take place, as well as the minimum number of prints, the  maximum number of prints, the minimum advertising commitment in U.S. Dollars and  the maximum advertising commitment in U.S. Dollars. Additionally, a date may be  specified for the Video Release of the Motion Picture, as well, along with a Holdback  period which would require that the Video release be not earlier than, say, three months  after the initial Theatrical release of the Motion Picture and perhaps not later than six  months after the initial Theatrical release.

II. Licensed Rights Terms

As discussed above, Motion Picture producers and copyright proprietors customarily vigorously retain and defend their copyrights in their Motion Pictures.  As a result, International Motion Picture Licensing Agreements tend to license very few rights, other than the rights to distribute, exhibit, publicly perform, and duplicate the Motion Picture for a limited number of years, and in some cases for a limited number of exhibitions or performances in each Licensed Media and subject to a number of strict approval rights, contractual restrictions, and holdback provisions as described in more detail herein.  The categories of rights most commonly licensed include Cinematic Rights, Video Rights, Pay TV Rights, Free TV Rights, and Ancillary Rights.  In some cases, International Motion Picture Licensing Agreement may also include provisions for the licensing of Merchandising Rights, Interactive / New Media Rights, Music Soundtrack Album Rights, and Music Publishing Rights arising from the licensed Motion Picture.

III. Financial Terms

The financial terms of each Licensing Agreement will of course vary depending on the film -- the budget, the stars, director, and producer, the relative strength of Licensor, the relative strength of Licensee and whether a theatrical release in the U.S. and elsewhere is contemplated. The following is a discussion of several types and key terms of financial arrangements between the Licensor and the Licensee.

 A.   Minimum Guarantee:  The most common arrangement is the Minimum Guarantee,  where the Licensor pays the Licensee a specified Minimum Guarantee for various rights  licensed under the Agreement. Depending on whether or not the Motion Picture is in pre- production, production or is completed, various installments of the Guarantee may be  payable upon execution of the Agreement, on the commencement of principal  photography, on the completion of principal photography, on the Notice of Initial  Delivery, on Additional Delivery, on Theatrical Release, on Video Release, or at some  other time.  It is important to note that the Minimum Guarantee deal is the type of deal  frequently used to raise financing for the production of Motion Pictures by providing   security and collateral for banks to lend money against.

  1. The foregoing installment payments are the guaranteed amounts that would be    paid to the Licensor. Beyond the Minimum Guarantee, overages (amounts in    excess of the Minimum Guarantee, depending on the success of the Motion    Picture in the particular Territory) will also be paid. These overages will be    discussed further below.

  2. Less common arrangements include the pure distribution deal where a Licensee   provides no Minimum Guarantee, but advances the Distribution Costs, retains a    Distribution fee and the Distribution Costs advanced and remits all or a negotiated   portion of the remaining balance to the Licensor.  Another type of arrangement is    the Costs Off-the-Top Deal with no Minimum Guarantee where the Licensee    advances the Distribution Costs, recoups them “off the top” and remits 50% or    some other negotiated percentage of the Gross Receipts back to the Licensor.

 B. Payment:   Two principal payment methods are customarily specified in International  Motion Picture License Agreements.

  1. Wire Transfer:  The first method is the wire transfer method, where the     Licensee is required to pay various installments of the Guarantee or other     payments due the Licensor by wire transfer of unencumbered funds free of any    transmission charges to a specified account.

  2. The Letter of Credit:   In other circumstances the Licensee is required to pay    the Licensor by irrevocable Letter of Credit, payable on presentation to the    Licensor’s bank of some or all of the following:

(a). Sight draft in customary commercial form indicating payment due,

(b). Invoice for payments then due,

(c). Bill of Lading, such as an air way bill evidencing shipment to Licensee of the Initial Delivery Materials,

(d). Completion Guarantor’s Certificate certifying that technically acceptable Initial Delivery Materials are available for delivery, or,

(e). Laboratory Access Letter indicating that the required Initial Delivery Materials are available at a designated laboratory for use by the Licensee.

 C. Allocation of the Guarantee:  The Guarantee may be allocated among various licensed  rights such as the following:

  1. 40% to the Cinematic Guarantee for Theatrical, Non-Theatrical and Public    Video Licensed Rights.

  2. 5% to the Ancillary Guarantee for Airline, Ship and Hotel Licensed Rights.

  3. 25% to the Video Guarantee for Home Video and Commercial Video Licensed    Rights.

  4. 10% to the Pay TV Guarantee for Pay TV Licensed Rights.

  5. 20% for the Free TV Guarantee for Free TV Licensed Rights.

 D. Talent Guild Residuals:  It should be noted that the Allocation of the Guarantee to the   various Licensed Rights is an important factor in the analysis of the profitability of an  International Motion Picture Licensing Agreement because substantial residual payments  are required to be made to talent guilds such as the Writer’s Guild, the Director’s Guild  and the Screen Actors Guild based on Gross Receipts derived from International Video,  Pay TV, and Free TV exploitation, whereas no residuals are paid for International  Theatrical exploitation.  Accordingly many Motion Picture producers attempt to allocate  as much of the Guarantee as reasonably possible to Theatrical exploitation in contract  negotiations and documentation so as to reduce talent guild residual payment  obligations and increase the profitability of the particular Motion Picture.  It is for this  reason that in many cases the talent guilds actually retain first priority security interests in  the copyright of the Motion Picture and file mortgages of copyrights with the US  Copyright Office.  Accordingly any rights granted under many International Motion  Picture Licensing Agreements are granted subject to the prior interests of the talent  guilds.

 E. Recoupment of the Guarantee: Depending on the financial arrangements, the  Guarantee may or may not be cross-collateralized among the Licensed Rights.

  1. If cross-collateralization is allowed, the applicable percentage of the Guarantee    will first be recouped from the Licensed Rights to which it is allocated. Any    shortfall with respect to one Licensed Right will then be defined and recouped in    accordance with the cross collateralization provisions outlined below:

  2. Where no cross-collateralization is allowed, the applicable portion of the    Guarantee may only be recouped from the Licensed Rights to which the     Guarantee has been allocated. No “shortfall” as explained in the cross-    collateralization provisions of Paragraph F below with respect to a particular    Licensed Right may be recouped from the Gross Receipts from any other     Licensed Right.

 F. Cross-Collateralization: Cross-Collateralization is the means by which the recoupable  portion of the Guarantee and the Recoupable portion of the Distribution Costs and  sometimes the distribution fee, in one Licensed Media, (for example, Cinematic Rights),  can also be recouped from revenue derived from another Licensed media (for example  Video and/or Pay TV and/or Free TV exploitation). In cases where a considerable  amount  of Distribution Costs are expended on the Theatrical Release, because of the substantial  risk involved in an expensive Theatrical Release, it is customary for the Licensee to be  able to recoup the “shortfall” in a less financially successful Theatrical Release from the  Video revenue, Pay TV revenue, Free TV revenue and other Ancillary Revenue.

 G. Disposition of Gross Receipts: Again, depending on the nature of the Motion Picture,  the creative elements, the budget, the relative strength of the Licensor and the Licensee,  and whether or not an expensive Theatrical Release is contemplated, there will be various  negotiated methods of the disposition or sharing of the Gross Receipts in the Licensed  Media of the Territory. The following is a brief description of some of the more common  methods the Licensor and Licensee will share Gross Receipts.

  1. The Costs Off the Top Deal:   Under this arrangement, the Licensee will be    allowed to recoup 100% of its Distribution Costs from the Gross Receipts in all    Licensed Media. The balance remaining after recoupment of all the Distribution    Costs will then be shared in a particular negotiated manner. (For example, after    the Minimum Guarantee has been recouped, 75% to the Licensor and 25% to the    Licensee). These negotiated percentages may apply across the board in all media    or may be different in different Licensed Media. (For example, after recoupment    of the Minimum Guarantee, the remaining Gross Receipts may be shared 65% to    the Licensor, 35% to the Licensee in the Licensed Cinematic Media, 30% to the    Licensor and 70% to the Licensee in Licensed Video Media, and 75% to the    Licensor and 25% to the Licensee in Licensed Television Media).

  2. The Distribution Deal:  The Distribution deal is a different type of arrangement    in which the Licensor will actually share in the Licensee’s Gross Receipts revenue   stream from first dollar in a negotiated percentage. Thereafter the Distribution    Costs will be recouped by the Licensee, then the Minimum Guarantee will be    recouped by the Licensee, and then the Licensor and the Licensee shall share    further in a negotiated percentage of the Gross Receipts revenue stream. (For    example, the Licensor and the Licensee may agree that they will each receive 20%   of the Gross Receipts from dollar one in each licensed media. The balance     remaining, or 60% of the remaining Gross Receipts will be used to recoup the    Distribution Costs and, the balance thereafter remaining will be used to recoup the   Minimum Guarantee, if any, advanced by the Licensee. Once the Minimum    Guarantee has been fully recouped, then the Licensor and the Licensee may agree    to share the remaining balance on a 50/50 basis or in some other negotiated    percentage.) All of these percentages and recoupment methods can also be     negotiated in a different manner -- for each Licensed Media.

  3. The Video Royalty Deal:   In the late eighties and early nineties, worldwide    Video Revenue achieved rapid and substantial growth and in many cases     surpassed the revenue from theatrical and other media. As a result, many times the   Video rights were licensed separately, or, when licensed along with other rights,    were accounted for separately. A typical Video Royalty deal would be structured    as follows:

   (a). Licensor’s Royalty:  The Licensor would be accorded a royalty of     somewhere between 20%-30% of the Home Video Rental Gross Receipts     and somewhere between 10% and 15% of the Home Video Sell-Through     Gross Receipts. (Video Rental revenue is that revenue which is generated     by selling Video cassettes to retail stores for rental.  Sell-Through Video     Rental revenue is revenue generated  by selling Video cassettes to      wholesalers and stores for sale directly through to the retail customer,     hence the term Sell-Through).  The Licensee would retain the balance of     the Gross Receipts for purposes of recouping its distribution fee and its     Distribution Costs.

   (b). Recoupment of the Minimum Guarantee:  If there were a Minimum     Guarantee paid against Video exploitation, the Guarantee would      customarily be recouped out of the Licensor’s royalty or share of the     Video Rental or Video Sell-Through Gross Receipts.

   (c). After Recoupment of Minimum Guarantee:  After the Guarantee has     been recouped, the Licensor’s share of the Home Video Rental and Sell-    Through Gross Receipts might stay the same or it might increase to a     higher percentage, depending on the particular arrangements between     Licensor and Licensee.

   (d). Minimum Pricing Terms; Free Goods:  Many times the Licensor will     insist that, for purposes of calculating the Video royalty, that there be     certain minimum prices that Rental and Sell-Through videocassette and     discs must be sold at in both the wholesale and retail channels.      Additionally, there is customarily a limit on the amount of free goods that     would be allowed to be given away as promotional items in both the     Rental and Sell -Through distribution channels.

IV. Delivery Terms

Because most Motion Pictures are delivered to the consumer in a number of different formats, i.e., theatrically in theaters, on videocassette, by satellite, by free TV, by pay TV, on videodisc, on DVD, and in other media, the delivery of materials necessary to enable the exploitation in all such media can be costly and complicated at times, particularly when different territories have different standards of technical acceptability of such delivery materials. International Motion Picture Licensing Agreements provide for different forms of Delivery Materials (“Delivery Materials”), depending on the relationship between the Licensor and the Licensee and the various exploitation requirements in the different Media licensed. For example, the Delivery items listed below may be furnished physically, or perhaps by Laboratory Access, or perhaps furnished to the Licensee on loan for copying and then returned, in other cases by satellite delivery, or in the form of the purchasing or lending of a video master. In most International Motion Picture Licensing Agreements, there is a multi-paged list of Materials (including lengthy definitions and specifications) that are required for the complete delivery of a Motion Picture into a particular Territory. These items include the following:

 A. The Feature Internegative in 70mm, 35mm, or 16mm
B. The Feature Optical Soundtrack
C. The Feature Print
D. The Feature Music and Effects Track
E. The Feature Textless Titles
F. Trailer Internegative
G. Trailer Optical Soundtrack
H. Trailer Print
I. Trailer Music and Effects Track
J. Trailer Textless Titles
K. Feature Low-Contrast Print
L. Trailer Low-Contrast Print
M. Print Master (2 Track)
N. NTSC ---(525 Lines) --- Video Master (in either 1 inch, D1, D2, or D3 formats)
O. PAL (625 Lines) Video Master (in either 1 inch, D1, D2, or D3 formats)
P. Additional Support Materials which are customarily delivered to the Licensee include:
1. The Feature Spotting List
2. The Trailer Spotting List
3. The Feature Continuity
4. The Trailer Continuity
5. Main and End Title Credit List
6. Paid Ad Credit List

  7. Video Packaging Credit List
8. Dubbing and Subtitling Restrictions
9. Music Cue Sheets
10. Synopsis
11. Pressbook
12. Electronic Press Kit
13. One Sheet Poster
14. Poster Art for the Video Packaging
15. Black and White Stills
16. Color Stills
17. Color Slides
18. Radio Spots
19. TV Spots

 Q. Outside Date for Delivery:   There is usually an outside date upon which the Licensor  is required to give notice to the Licensee that the Licensor is prepared to make Initial  Delivery (“Initial Delivery”) of the Motion Picture.

 R.  Licensee’s Obligation to Pay For Delivery Materials:  With respect to the Delivery  Materials listed above, in many cases, the Licensee will be required to pay for the costs  certain of the Delivery Materials separate and apart from the Minimum Guarantee.  These  payment obligations for specific materials, such as for example an NTSC or PAL Video  Master will be specified in the Agreement.

V. The Standard Terms and Conditions

 A. The foregoing terms are the customary principal Deal Terms (“Deal Terms”) and  conditions for International Motion Picture Licensing Agreements. There is also usually,  a 15-20 page Exhibit to the Agreement which is entitled Standard Terms and Conditions  (“Standard Terms”). These terms and conditions traditionally outline Definitions of  Terms, a more specific definition of the Motion Picture and the Key Creative Elements, a  discussion of the various versions of the Motion Picture which are required to be  delivered, provisions concerning when each Licensed  Right is indeed vested in the  Licensee, provisions concerning the reservation of rights by the Licensor, a definition of  Reversion with respect to each specific Licensed Right and Reversion as it applies to the  overall term of the Agreement, more detailed definitions, terms, conditions, and  provisions relating to the Territory, the Term, License Periods, Gross Receipts,  Recoupable Distribution Costs, Payment Requirements, Accountings, Delivery and  Return, General Exploitation Obligations, Theatrical, TV, and Video Exploitation  Obligations, Music Matters, Suspension and Withdrawal, Default and Termination, Anti- Piracy Provisions, Licensor’s and Licensee’s Warranties and Indemnities, Assignment  and Sublicensing, and other Miscellaneous Terms and Conditions.  The following are  some of the more important provisions contained in customary Standard Terms and  Conditions of International Motion Picture Licensing Agreements:

  1. Credit, Advertising, Dubbing, Subtitling, Editing:  The Standard Terms will    usually include provisions, concerning the exercise of Allied Rights, screen and    paid advertising requirements, the approval procedures over advertising materials    by the Licensor, the requirement that the Licensee comply with all the required    screen, paid advertising and publicity and promotional requirements as well as    actor, writer, and director name and likeness restrictions, Videogram packaging    credit requirements, and  dubbing, subtitling and editing restrictions pursuant to    various guild agreements and specific contractual obligations relating to such    issues with individual actors, directors, and writers.

  2.  Exercise of Allied Rights:  Also included in the Standard Terms are specific    provisions concerning the exercise of Allied Rights, including the non-exclusive    right to advertise, publicize and promote the Motion Picture, to include in all    advertising, promotion and publicity the name, voice and likeness of any person    rendering materials or services on the Motion Picture, the restrictions on any    commercial endorsements of any product or service other than the Motion Picture,   the inclusion of the credit or logo of the Licensor at the beginning and end of the    Motion Picture, the Licensor’s right to change the title of the Motion Picture but    only after first obtaining the Licensor’s approval of the change, the Licensee’s    right to dub the Picture but only in the authorized language, the Licensee’s right    to subtitle the Motion Picture but only in the authorized language, the Licensee’s    right to edit the Picture but only in accordance with various censorship terms and    conditions, and the Licensee’s right to include commercial announcements in the    Picture but only at those specific points specified by the Licensor.

 3. Restrictions and Limitations:  The Licensee is customarily restricted from the  following:

(a). Altering or deleting any credit, copyright notice or trademark notice appearing on the Motion Picture, or

(b). including any advertisement before, during, or after the Motion Picture other than the credit or logo of the Licensee, an approved anti-piracy warning, or commercials which are approved by the Licensor.

 4. Territory and Region

(a).  Existing Political Borders:  The definition of Territory is customarily the countries and territories listed in the Agreement as their political borders exist as of the date of the Agreement.

(b). Embassies; Government Installations, etc.: The Territory generally excludes foreign countries, embassies, military and government installations, oil rigs and marine installations, airlines-in-flight, and ships at sea located within the Territory with respect to certain specified Licensed Media and includes the same with respect to other limited specified Licensed Media.

(c).  Changes in Borders:  If, during the Agreement Term, an area separates from a country in the Territory then the Territory will customarily nonetheless include each separating area which formed one political entity as of the date of the Agreement.  If during the Term an area is annexed by a country in the Territory, then the Licensee will promptly give Licensor notice whether the Licensor desires to exploit any Licensed Rights in such new area, the Licensor will then customarily accord the Licensee a right of first negotiation to acquire such Licensed Rights in the area for the remainder of its License Period subject to the rights previously granted to other entities in such area.

5.  Parallel Imports:  The Agreement customarily provides that the Licensor does not warrant that it has granted or can grant exclusivity protection against sale or rental in the Territory of Videograms embodying the Motion Picture imported from outside of the Licensed Territory.  The Licensor nevertheless generally agrees that during the License Period for any Licensed Video Rights, it will not sell or authorize the sale in any authorized language of Videos embodying the Motion Picture that are sold in the region outside the Territory and intended primarily for consumer sale or rental within the Licensed Territory except that such a provision generally does not apply to sales of regional unsubtitled English language Videograms even if English is an authorized language.  The parallel import provisions apply specifically but without limitation in cases where the region includes any country in the European Union or European Economic Area.

6.  Gross Receipts:   The Agreement generally has a very broad definition of Gross Receipts with respect to each and every Licensed Right.  This definition customarily includes without limitation all monies or other consideration of any kind (including all amounts from advances, guarantees, security deposits, awards, subsidies, and other allowances) received by, used by, or credited to the Licensee or any Licensee Affiliates, or any approved subdistributors or agents from the license sale, lease, rental, barter, distribution, diffusion, exhibition, performance, exercise, or other exploitation of each Licensed Right in the Motion Picture, all without any deductions whatsoever.

 (a). Infringement Recoveries:  Gross Receipts will also include all recoveries for infringement of any Licensed Right.

(b).  Advertising Accessories:  Gross Receipts will also include all monies received by or credited to the Licensee or any approved subdistributors or agents from any authorized dealing in trailers, posters, copies, stills, exerpts, advertising accessories, or other materials used in connection with the exploitation of any Licensed Right or contained on any Videograms in embodying the Motion Picture.

(c). Calculated “At the Source”:  The Gross Receipts are also generally calculated “at the source” without any deduction of any fee collected by any Licensee Affiliates, subdistributors, or agents. (For example, this means that Gross Receipts derived form theatrical exploitation would be calculated at the level at which payments are remitted from the theaters, or from television exploitation, at the level at which payments are remitted by broadcasters or cable systems without any deduction therefrom).

(d).  Royalty Income:   Certain royalty income to which the Licensor is entitled, is generally excluded from the definition of Gross Receipts in the Agreement between the Licensor and the Licensee.  The reason for this exclusion is that the Licensor generally has the right to collect these royalties directly and the licensee accordingly is not allowed the right to charge a distribution fee and to charge distribution expenses against such royalty income.  This income generally includes all amounts collected by any collecting society, authors rights  organization, performing rights society, or governmental agency that is payable to authors, producers, performers, or other persons, and that arise from royalties, compulsory licenses, cable re-transmission income, music performance royalties, tax rebates, exhibition surcharges, levies on blank Videograms or hardware, rental or lending royalties, or the like.  If any of these sums are paid to the Licensee, then the Licensee is required to immediately remit such sums to the Licensor with an appropriate statement identifying the payment and without any deductions therefrom.

(e). Rebates and Subsidies:  Rebates and subsidies are generally excluded from the definition of Gross Receipts but are used to reduce recoupable Distribution Costs.  Such rebates and subsidies include: print, publicity, and similar subsidies for the cost of releasing, advertising, and publicizing the Motion Picture; income from publicity tie-ins, or freight, print, trailer, advertising, and other cost recoveries discounts, rebates, or refunds from approved subdistributors, exhibitors, or other persons or entities.

7. Recoupable Distribution Costs:

(a).  The Agreement will generally have an extensive list of recoupable Distribution Costs, which the Licensee will be entitled to recoup from the Gross Receipts generated from the exploitation of the Motion Picture in various Licensed Media.  Recoupable Distribution Costs will generally mean all direct, auditable, out of pocket, reasonable and necessary costs, exclusive of salaries and overhead, and less any discounts, credits, rebates, or similar allowances, actually paid by the Licensee for exploiting each Licensed Right in arms length transactions with third parties, all of which will be advanced by the Licensee and recouped under the Agreement for the following:

 (i). Customs duties, import taxes and permit charges necessary to secure entry of  the Motion Picture into the Territory.

 (ii). Copyright registration, title registration, and import clearance costs.

 (iii). Taxes including Sales, Use, VAT, Admission and turnover taxes and relate charges assessable against the Gross Receipts realized from the exploitation of any Licensed Rights.  But these taxes will not include Corporate Income, Franchise, or Windfall Profits taxes, or Remittance or Withholding taxes assessable against the amounts payable to the Licensor unless otherwise agreed between Licensee and Licensor.

 (iv).  Shipping and insurance charges for the Delivery of Delivery Materials to the Licensee.

 (v). The cost of manufacturing of internegatives, interpositives, preprint materials, positive prints, masters, tapes, trailers, and other copies of the Motion Picture in an amount which is reasonably pre-approved by the Licensor.

 (vi). The costs of subtitling or dubbing, if authorized, and only in the authorize languages.

 (vii). The cost of approved advertising, promotion, and publicity which amounts are usually pre-approved by the Licensor.

 (viii). Legal costs and charges paid to obtain recoveries for infringement by third party, but only to the extent reasonably pre-approved by the Licensor.

 (ix). Actual and normal expenses incurred in recovering debts from defaulting sublicensees.

 (x). The costs of packaging for Videograms, but only to the extent reasonably pre-approved by the Licensor.

 (xi). Censorship fees and costs of editing to meet censorship requirements but only as allowed under the terms of the Agreement.

(b). Limitations on Recoupable Distribution Costs:  Generally, any specific costs which are not authorized or approved by the Licensor are not subject to recoupment by the Licensee.  There are customarily specific restrictions against double deducting or recouping a Distribution Cost more than once.  Unless otherwise agreed by the parties, recoupable Distribution Costs for one Licensed Right (i.e. for Theatrical exploitation) are not recoupable from the Gross Receipts that are generated from any other Licensed Right (i.e. Television exploitation) unless otherwise authorized under the cross-collateralization and recoupment provisions of the Agreement.

8.  Payment Obligations:  The Agreement will generally have extensive and detailed provisions regarding payment requirements.  Many of these payment provisions are designed to give Banks which have loaned production financing against the Minimum Guarantees some level of comfort that payments will be made when due.  These terms and conditions customarily include some or all of the following:

 (a). Timely payment:  Timely payment is generally the essence of the Agreement, and payment is only considered made when the Licensor has immediate and unencumbered use of funds in the required currency, in the full amount due.  The Licensee is generally required to use diligent efforts to promptly obtain all permits necessary to make all payments to Licensor.

 (b). Minimum Guarantee:  The Minimum Guarantee is generally a non-returnable but recoupable sum in accordance with the recoupment provisions of the Agreement.  The Minimum Guarantee is generally a minimum net sum payable to the Licensor and no taxes or charges of any sort may be deducted from it unless otherwise agreed by the parties. (For example, if an Agreement is made with a Japanese Licensee for a $400,000.00 Minimum Guarantee and there is a 10% Japanese withholding tax, it would be the Japanese Licensee’s responsibility to pay the Japanese withholding tax so that the net amount remitted to the Licensor under the Minimum Guarantee would be $400,000.00 and not $360,000.00)

 (c). Installments:  The Licensee is required to make all installment payments when due. When an installment is payable on events within the Licensor’ control (e.g. the start or end of principal photography), the Licensor will customarily required to give the Licensee timely notice of the event and the payment required.  When any installment is payable on events within the Licensee’s control (e.g. Theatrical or Video release within the Licensed Territory) the Licensee will customarily be required to give the Licensor timely notice of the event, along with all payments then due to the Licensor.

(d). Letter of Credit:  If a payment is to be secured by a Letter of Credit, then the Licensee will customarily open the Letter of Credit at a bank in the Territory designated by the Licensor as a corresponding bank of Licensor’s bank.  While open the Letter of Credit will remain valid, negotiable, transferable, confirmed, and  irrevocable; it will be automatically renewable for any period specified in the Agreement if the Licensor has not negotiated the Letter of Credit by its first date of expiration.  All costs of the letter of credit are customarily borne by the Licensee, unless otherwise agreed by the parties.

 (e). Limitations on Deductions:  Unless otherwise provided in the basic Deal Terms, the Agreement will generally have a provision which limits the amounts of deductions from any payments due the Licensor as a result of any bank charges, conversion costs, Sales, Use, or VAT taxes, “Kontingents”, quotas, or any other taxes, levies, or charges. The Agreement will generally prohibit the deduction of Remittance or Withholding taxes from the Minimum Guarantee, but any such taxes paid by the Licensee are usually allowed to be recouped as Recoupable Distribution Costs after the Licensee provides the Licensor with appropriate documentation.

(i).  Overages; Deductions:  If the Licensee is required to pay any remittance or withholding taxes on overage amounts due to the Licensor in addition to the Minimum Guarantee, then the Licensee will customarily provide the Licensor with all documentation indicating the Licensee’s payment of the required amount on the Licensor’s behalf before deducting such payment from any sums due the Licensor.

 (f). Blocked Funds:  The Agreement will usually have a blocked funds provision which provides that if a law in the Territory prohibits the remittance of any amounts due to the Licensor, then the Licensee will immediately give the Licensor notice and will then deposit such amounts in the Licensor’s name for the Licensor’s free use in a suitable depository designated by the Licensor in the Territory without any deduction for the costs of providing such service.

 (g). Finance Charge on Late Payments:  The Agreement generally will provide for a late payment charge in addition to any other rights and remedies which the Licensor may have for the failure of the Licensee to make a timely payment.  The AFMA Multiple Rights  Licensing (“AFMA Agreement”) Agreement provides for the finance charge to accrue from the date the payment was due until it is paid in full at 3 points over the 3 month LIBOR rate or the highest applicable legal interest rate, whichever is less.

(h). Exchange Provisions, Payment:  The Agreement will usually provide for all payments to be made in US dollars or such other freely remittable currency which is designated by the Licensor.  All payments are generally computed at the prevailing exchange rate on the date the payment is due at a bank designated by the Licensor.  In the event of a late payment, the Licensor is generally entitled to the most favorable exchange rate between the due date and the payment date.  The risk of devaluation of the US dollar or other currency chosen by the Licensor against the currency of the Licensed Territory is at the Licensor’s risk; and the risk of the devaluation of the currency in the Licensed Territory against the US dollar or other currency designated by the Licensor is customarily at the Licensee’s risk.

 (j).  Exchange Provisions, Recoupment:  Many Motion Picture Licenses are made to a foreign Territory which includes a  number of countries (For example, when German language rights are licensed, the Territory generally includes all German language rights in Germany, Austria, and Switzerland).  The major country in that particular Territory is considered Germany.  As a result, the calculation and recoupment of the Minimum Guarantee and the Recoupable Distribution Costs are generally made in the currency of the major country in the Territory, in this example, Germany.  As a result, any payments made for Recoupable Distribution Costs in Austrian currency or Swiss currency will be converted to the German currency for recoupment purposes using the exchange rate on the date that the Minimum Guarantee was received by the Licensor or the date the Recoupable Distribution Costs was paid by the Licensee.

 (j).  Documentation:  The Agreement will generally require the Licensee to undertake all reasonable efforts to obtain permits or clearances required to exploit the Licensed Rights in the Territory, such as certificates for local dubbing, copyright registration, quota permits, censorship clearances, the filing of author certificates, certificates of origin, music cue sheets and the like, which are required to be filed with appropriate local authorities and obtaining permits and clearances, as well as making payments therefor.

9.  Accountings:    The Agreement will generally have a number of detailed provisions concerning accounting issues.  These issues include some or all of the following:

(a). Limits and Cross-Collateralization:  Each Motion Picture is customarily licensed separately.  Accordingly, no payment for one Motion Picture will be cross-collateralized with or set off against any amounts payable for any other Motion Picture licensed to the Licensee whether included in the Agreement, another particular agreement, or otherwise.  Any amounts due for the particular Motion Picture licensed may not be used to recoup amounts unrecouped for any other motion picture or vice versa.

(b). Limitations on Allocations:  If the Licensed Motion Picture is exploited with other motion pictures, then the Licensee will generally be required to only allocate Gross Receipts and expenses among the Licensed Motion Picture and the other motion pictures, in a manner which the Licensor has had an opportunity to approve in advance in its sole discretion.

(c). Financial Records:  The Licensee is virtually always required to maintain complete and accurate records in the currency of the Licensed Territory of all financial transactions regarding the Motion Picture in accordance with generally accepted accounting principles in the entertainment distribution business throughout the Term of the Agreement and during any period while a dispute about payments remains unresolved.  These records generally include all Gross Receipts derived, all Recoupable Distribution Costs paid, all allowed adjustments or rebates made, and all cash collected or credits received.

(i).  Cash Basis;  Maintenance of Records:  All records are customarily maintained on a cash basis. If the Licensee permits any offset, refund, or rebate of sums due Licensor such sums will nonetheless be included in Gross Receipts. The Licensee will also keep complete and accurate copies  of every statement, contract, voucher, receipt, computer record, advertising report, correspondence, and other writings from all persons or entities pertaining to the Motion Picture.

(ii).  Accounting Statements-Contents:  The Licensee will generally have a number of reporting requirements under the Agreement including Accounting Statements in English (and if requested supporting documentation) for the Motion Picture that identifies from the time of the immediately prior statement, if any, all Gross Receipts derived, all Recoupable Distribution Costs paid, identifying to whom payments were made and all exchange rates used.

(iii).  Video Reporting:  If any Video rights are licensed, the accounting statements will also include detailed information as to all Videograms manufactured, sold, rented, leased, returned, erased, recycled, or destroyed, the wholesale and retail selling prices of all Videograms and all allocable deductions taken.

(iv).  Multiple Country Reporting; Reserves:  If the Territory contains one  or more country, the information is generally required to be reported separately for each country and consolidated for the entire Territory (e.g. the German speaking territories Germany, Austria, Switzerland).  The information will be provided in reasonable detail on a current and cumulative basis.  Additionally, each accounting statement is usually accompanied by a payment of all monies then due to the Licensor.  The Licensee may not withhold any Gross Receipts as a reserve against returned or defective Videograms for more than two consecutive accounting periods, and the amount withheld may not exceed 10% of the Video Gross Receipts  derived for the two accounting periods for which  the reserve is retained.

(v). Statements-When Rendered:   Accounting Statements are customarily rendered monthly, quarterly, or as the Term progresses, semi-annually.  The AFMA Agreement provides that the Licensee is required to render statements for the following periods:

(aa).  Each of the twelve months after the Theatrical release, or if there is none, the Video release.

(bb).  Each calendar quarter or other quarterly periods designated by the Licensor during the entire Term of the Agreement and as long as thereafter any Gross Receipts are derived by the Licensee.

(cc).  One month after the Video release, the first pay TV telecast of the Motion Picture in the Territory, and first free TV telecast of the Motion Picture in the Territory.  Each statement is customarily accompanied by payment of all monies then due the Licensor.

(vi).  Audit Rights:  The Licensor will generally have the right to audit the books and records of the Licensee relating to the Motion Picture with at least ten days prior notice. This examination may be conducted by the Licensor itself or through its auditors.  The examination customarily takes place at the Licensor’s expense, unless it uncovers an uncontested underpayment of more than 5% of the amount shown due to the Licensor on the statement audited, in which case the Licensee will customarily be required to pay the cost of the audit.

10.  Delivery and Return:  Because a Motion Picture has so many delivery elements required for its exhibition in different media, the Delivery of a Motion Picture, will generally take place in stages. Certain Delivery Materials are delivered by actual physical delivery, other elements are delivered through access to the materials at a laboratory, other materials are delivered on loan, and some materials may be delivered by satellite transmission.  There are usually an initial set of materials that are required to be delivered (“Initial Delivery”) and then at a later time, an additional set of materials that are required to be delivered. (“Additional Delivery”) The AFMA Agreement sets out the procedure for Initial Materials Delivery and Additional Materials Delivery as follows:

(a).  Initial Delivery:  The Licensor will generally give Licensee a “Notice or Initial Delivery” that the Licensor is prepared to deliver the Initial Materials by a specific date.  Upon the notice, the Licensee is customarily required to immediately pay for such Initial Materials and their cost of shipment.  Upon the receipt of the payment, the Licensor will ship the Initial Materials to the Licensee.

(i). Ordering of Materials:  If the Licensor specifies the Materials that are available in the Licensor’s notice of Initial Delivery, then within ten days of receipt of the notice, the Licensee will give a notice to the Licensor stating the number of pre-print items, prints, trailers, advertising and promotional accessories, support items, and other Initial Materials relating to the Picture that the Licensee requires subject to Licensor’s reasonable approval.  The Licensor will then give the Licensee notice of the cost of the approved Initial Materials and their shipment to the Licensee and the Licensee will immediately pay for such Initial Materials. The Licensor will then deliver such Initial Materials to the Licensee.

(ii).  Outside Date for Initial Delivery:  In all cases, the process of Initial Delivery of all approved Initial Materials must take place within 2 months of the Licensor’s notice of Initial Delivery.

(b).  Additional Delivery:  Essentially the same process as described above will take place with respect to the Additional Delivery items.  The Delivery Materials to be delivered during each phase of Delivery will be specified in the Delivery Terms section of the Agreement and each phase will include a number of the Materials listed above in Section IV Delivery Terms.

(c).  Delivery of Materials:

(i).  Physical Delivery:  When physical delivery is required, the Licensor will deliver to the delivery location specified in the Agreement the physical materials listed in the Agreement which are required for use as or manufacture of necessary exploitation materials. Unless otherwise specified in the Agreement, the physical materials are customarily shipped to the Licensee by air transport.

(ii). Laboratory Access:  Where laboratory access is specified in the Agreement, the Licensor will provide the Licensee with laboratory access to the physical materials needed for use as or manufacture of necessary exploitation materials. An approved Laboratory Access letter which is customarily attached as an Exhibit to the Agreement, will provide the terms and conditions of access between and among the Laboratory, the Licensor, and the licensee.  The physical materials are customarily held in a recognized laboratory or facility in the Licensor’s name.  The Licensee may order prints and other exploitation materials for the Motion Picture to be manufactured from the accessible physical materials all at the Licensee’s sole cost and expense.  The Laboratory Access letter will customarily provide that the Licensee is responsible for charges it incurs and the Licensor is responsible for charges it incurs and that unpaid charges of either the Licensor or the Licensee shall not prohibit the other from further access to or the ordering of additional materials.

(iii).  Loan Materials:  Where loan of materials is specified in the Agreement, the Licensor will deliver on loan to the delivery location specified by the Licensee, the required physical materials for manufacture of necessary pre-print materials. These physical materials loaned will only be used to make new pre-print materials at the Licensee’s sole expense from which necessary exploitation materials can be made.  These physical materials will customarily also be held in a laboratory or facility subject to the Licensor’s reasonable approval, and will be returned to Licensor within a reasonable time that is designated by the Licensor.

(iv).  Satellite Delivery:  Where Satellite Delivery is indicated, the Licensor may deliver various Delivery Materials by satellite transmission.  The Licensor is customarily responsible for all uplinking transmission costs. The Licensee is customarily responsible for arranging to receive this satellite reception and for all downlinking reception costs. The Licensee’s failure to make suitable downlinking receiving arrangements, or the failure to receive a transmission of the Motion Picture due to technical downlink or reception failure is customarily not deemed a breach of the Agreement by the Licensor, and will not affect the Licensee’s obligations under the Agreement including the obligation to make any payments. The Licensee will customarily pay Licensor the cost incurred for each missed satellite feed.

(d). Delivery of Support Materials:  Support materials include such items as stills, slides, color stills, video packaging art, poster art, one sheet (poster), press kit, press book synopsis, music cue sheets, video packaging credits, paid ad credits, main and end title credits, and other support items.  In the event that the Licensee does not use any of support materials created by the Licensor, then the Licensee will be required to obtain prior approval by the Licensor for using any of its own servicing, advertising, promotional or other support material so as to insure that they meet all of the contractual requirements and restrictions of the Licensor.

(e).  Evaluation and Acceptance:  Because technical standards can be different in various Territories around the world, the Licensee must have an opportunity to review and evaluate Delivery Materials for technical suitability.  The Agreement will usually provide for a prompt evaluation period.  This period usually ranges from 10-30 days.  The AFMA Agreement provides that all Delivery Materials will be considered technically satisfactory and accepted by the Licensee unless within ten (10) days after the receipt of the Delivery Materials, the Licensee gives the Licensor notice specifying any technical defect.  If the Licensee’s notice is accurate, then the Licensor will at its election either:

(i). Timely correct the defect and redeliver the affected Delivery Materials, or

(ii). Deliver new replacement Delivery Materials, or

(iii). Exercise its rights of suspension or withdrawal under the suspension and withdrawal provisions included in the Agreement.

(f). Delay Tactics:  Many times in the Delivery process, Evaluation and Acceptance is used as a delay tactic, or an excuse for not paying sums when due. As a result, it is customary to include a clause in the Agreement stating that in the event that the Licensor has undertaken a Theatrical or Video release of the Motion Picture, or has begun exploiting any Licensed Rights, then any alleged defect will be deemed waived by the Licensee.

(g). Ownership of Materials:  Legal ownership of and title to all Delivery Materials, customarily remains with the Licensor subject to the Licensee’s right to use such Delivery Materials under the terms of the Agreement.  The Licensee is also required to exercise due care in safeguarding of all Delivery Materials, and assumes all risk for their theft or damage while they are in the Licensee’s possession.

(h).  Payment for Delivery Materials:  The Licensee will customarily pay for all Delivery Materials as indicated in the Deal Terms of the Agreement.  All costs of Delivery and return, including shipping charges, import fees, duties, brokerage fees, storage charges, and related charges will customarily be the Licensee’s sole responsibility unless its otherwise specified in the Deal Terms of the Agreement.

(i).  Ownership of Licensee Created Materials:  When the Licensee creates its own materials such as dubbed versions, masters, advertising and promotional materials artwork and the like, the Licensor is usually given free unrestricted to all such materials created by the Licensee.  Once the alternate language tracks and dubbed versions are created, the Licensee is required to give Licensor notice of each person or entity who prepares any such dubbed or subtitled tracks for the Motion Picture, and of each laboratory or facility where the tracks or materials are located.  Promptly after completion of any dubbed or subtitled version of the Motion Picture, the Licensee will also provide Licensor with immediate unrestricted free access to all those dubbed and subtitled tracks.  Additionally, the Licensor will immediately become the owner of the copyright in all dubbed and subtitled tracks, subject to a nonexclusive free license in favor of the Licensee to use such track during the Term of the Agreement solely for the exploitation of the Licensed Rights.  If such ownership is not allowed under the law in a Territory, then the Licensee will grant the Licensor a non-exclusive free license to use such dubbed or subtitled tracks worldwide in perpetuity without restriction.

(j).    Return of Delivery Materials:  Upon the expiration of the Agreement Term, the Licensee will at the Licensor’s election, either:

(i). Return all Delivery Materials to Licensor at Licensee’s expense, or

(ii). Destroy all Delivery Materials and provide Licensor with the customary Certificate of Destruction.

11. General Exploitation Obligations and Restrictions: The Agreement generally provides affirmative obligations on the part of the Licensee with respect to exploitation as follows:

(a). Holdback Periods:  Not to exploit or otherwise authorize the exploitation of any Licensed Right before the end of a holdback period,

(b).  No Discrimination:  Not to discriminate against the Motion Picture or use the it to secure more advantageous terms for any other Motion Picture product or service, or

(c). Obligation to Furnish Information:  Upon the Licensor’s request, the Licensee is obligated to provide all information to the Licensee regarding the time and place of the first exploitation of each Licensed Right.

(d).  Approval Rights: The Licensor is customarily given the following Approval Rights regarding the exploitation of each Licensed Right:

(i).  License Agreements: The approval over the material terms of each license for the exploitation of the Licensed Rights, and

(ii). Subdistributors, Agents:  The Licensor will also have prior approval of the material terms of each subdistribution agreement or agency agreement.

(e). Continuing Obligations: There is also customarily an affirmative continuing obligation for the Licensee to use all of its diligent efforts and skill in the distribution and exploitation of the Licensed Rights and to maximize the Gross Receipts and minimize the Recoupable Distribution Costs, to distribute and exploit the Motion Picture consistent with the quality standards of first class distributors within the Territory, and to maintain the Motion Picture in continuous release throughout the Territory for a period consistent with reasonable business judgment.

12.  Theatrical Exploitation Obligations:

(a). Licensor’s Approval Rights: The Licensor is generally given broad Approval Rights on an ongoing basis of significant aspects of the exploitation of the Cinematic Rights throughout the Territory, including the initial Theatrical release campaign, the distribution policy of the Licensee , execution of contract terms, the minimum and maximum print order, total amount and the specific items of the advertising and publicity budgets, the advertising and marketing campaign of release dates, the release pattern, the theaters in key cities, the marketing strategy, Gross Receipts allocations between the Motion Picture and short subjects, and any amendments or modifications to these matters. The Licensee is also required to timely submit each such item to the Licensor for the Licensor’s prior approval.

(b). Theatrical Release Obligations: The Licensee undertakes to place the Motion Picture in general theatrical release throughout the Territory in no less than a number of cities and theaters reasonably required by the Licensor and no later than the specified theatrical release date referred in the Agreement.

(c). Print Order: The Deal Terms will customarily specify that the Licensee will order and pay for no less than the minimum number of prints and no more than the maximum number of prints.

(d). Advertising and Marketing Commitments: The Licensee is also customarily required to comply with the advertising and marketing campaigns approved by the Licensor and to spend no less than the minimum advertising commitment and no more than the advertising budget reasonably approved by Licensor. Additionally, the Licensee will be required to give the Licensor reasonable advance notice of all premieres of the Motion Picture in the Territory.

(e). Festivals, Charity Premieres: The Licensee will customarily not enter the Motion Picture in any festival, charitable screening, or the like without the Licensor’s prior approval.

(f). Release Information: In addition to the accounting requirements, with respect to Theatrical exploitation, the Licensee may be required to give weekly notices to the Licensor, furnishing all information available regarding the results of the release including exhibition terms, box-office receipts as received, expenses as incurred both on a weekly and cumulative basis.

(g). Exhibition Restrictions: The theatrical exhibition of the Motion Picture will also customarily be required to comply with the following:

(i).  Separate Agreements: All exhibition agreements should be separate and independent from all other exhibition agreements for any other Motion Picture project or service.

(ii). Restricted Engagements: The Licensee should not authorize its first run to be exhibited on a flat license or on a four-wall (where the Licensee pays for the rental of the theater and keeps all the revenue) basis or as part of a multiple feature engagement unless the Licensor has pre-approved same and all relevant terms of the exhibition including the proposed allocation of box office receipts to the Motion Picture as well as advertising costs, license fees and film rental.

(iii). Allocations Among Motion Pictures: If the Motion Picture is required by law to be exhibited with another motion picture or short subject, there are stringent allocation requirements with respect tot he box office receipts which would apply to such an exhibition in order to protect the Gross Receipts to be allocated to the licensed Motion Picture.

(iv). Settlements: Any settlements with the theater owner should be submitted to the Licensor for approval, and should be at rates no less than those comparable to Motion Pictures in the Territory.

(v). Audit:  The Licensee is customarily required to audit all exhibition engagements for the Motion Picture consistent with the practices of first class distributors in the Territory and promptly supply the Licensor with the results of such audits.

(vi). Maximizing Collections:  The Licensee is also customarily required to undertake all actions reasonably necessary to maximize collections from the exhibitors as quickly as possible.

(h). Controlled Theaters: If the Licensee also controls the theaters in which the Licensee wishes to exhibit the Motion Picture, the Licensee is required to license the Motion Picture at an arm’s length basis and also provide Licensor with copies of all exhibition agreements with the  controlled theater.

13.  Video Exploitation Obligations: The Agreement will customarily provide for the Licensee to release the Video no later than the specified Video Release Date in the Deal Terms and further provide that the Licensee will only exploit the Video in the formats for which it is authorized , and will not authorize or advertise of the availability of Videograms to the public until two months before the end of any applicable Video Holdback Period.

(a). Efforts and Quality:  The Licensee is also customarily obligated to use diligent efforts and skill in the manufacture, distribution and exploitation of the Videograms of the Motion Picture, and to meet quality standards at least as comparable as other motion picture Videograms commercially available through legitimate outlets in the Territory.

(b). Catalogue Availability: The Licensee is customarily required to make the Video of the Motion Picture available through its catalogue and not allow Videograms to leave normal channels of distribution for a commercially unreasonable period of time.

(c). Licensor’s Video Ad Campaign Approval Rights: The Licensor is generally given the right of prior approval for the advertising and marketing campaign for the exploitation of Video Licensed Rights.  All proposed advertising and artwork is submitted to the Licensor for approval before it is used, and, unless it is otherwise specified, the Licensor is given one month to object to the artwork and advertising.

(d). The Licensor’s Packaging Approval Rights:  The Licensee will generally provide the prototype copy of the Videotape and its packaging for the Licensor’s approval, to be given within ten (10) days of Licensor’s receipt of said items. The Licensor is also generally given ten (10) free copies of each authorized format of the Videogram in its packaging for Licensor’s own use.

(e). Limits on Included Material: The Licensee is customarily precluded from authorizing any advertising or any other material to be included on the Videogram without the prior approval of the Licensor.

(f). Minimum Retail Price: Where there is a Minimum Retail Price in the Deal Terms of the Agreement, the Licensee is not authorized to exploit the Videogram at a consumer price that is less than the Minimum Retail Price and accordingly, for purposes of calculating the Gross Receipts and amounts due to Licensor, the Videograms will be deemed sold at retail for not less than contractually specified Minimum Retail Price.

(g). Minimum Wholesale Price: Similar provisions as noted above with respect to the Minimum Retail Price, apply to the Minimum Wholesale Price, as well.

(h). Free Goods:  Where there is a minimum number of free goods set forth in the Deal Terms (which are free copies of the Video used as promotions, gifts, or free samples),  the Licensee agrees not to exceed that the amount. In the event that the amount is exceeded, then all additional units are deemed to be sold at not less than the Minimum Wholesale Price specified in the Deal Terms for purposes of computing the Gross Receipt and amounts due to the Licensor.

(i). Sell-off Period:  During the last six (6) months of the Term, or the License Period for Video rights, the Licensee customarily agrees not to manufacture an excessive number of Video units reasonably exceeding the normal customer needs. During the three (3) month period following the end of the License Period, the Licensee will customarily have the non-exclusive right to sell-off its then-existing inventory for Home Video exploitation  only. At the end of the three (3) month period, Licensee will either sell its remaining Videograms and their packaging to the Licensor at cost or destroy them and provide Licensor with a customarily Certificate of Destruction.

(j) Import/Export Restrictions: The Licensee customarily agrees not to import or authorize the importation of Videograms into the Territory other than the Delivery Materials provided by the Licensor. The Licensee also agrees not to export or authorize the export of Videograms embodying the Motion Picture from the Territory.

14. Television Exploitation Obligations:  In exploiting Television Rights in a Territory, the Licensee will customarily have the following release obligations:

(a). Advanced Notification:  Licensor will be notified in advance of the first Pay TV and Free TV broadcast of the  Motion Picture in the Territory.

(b).  Dubbed and Subtitled Versions: The Motion Picture will not be broadcast on Pay TV  or Free TV in dubbed or subtitled versions except as authorized in the Deal Terms of the Agreement.

(c). Authorized Runs and Playdates:  The Licensee will not authorize the broadcast of more than the authorized number of Runs and Playdates set forth in the Deal Terms and if there are no specific Runs or Playdates authorized then said numbers will be reasonably pre-approved by the Licensor.

(d). Encryption:  The Licensee will not broadcast or authorize the broadcasting of the Motion Picture in any form of Pay TV other than an encrypted form and will not sell, rent, export, or authorize the sale, rental, or export of decoders for such encryption outside the Territory.

(e). Reception Outside the Territory:  The Licensee will not authorize the broadcast of the Motion Picture by any means including terrestrial, cable, or satellite from within the Territory, where such broadcast is primarily intended for reception outside the Territory, or is capable of reception by more than an insubstantial number of home TV receivers outside the Territory.

(f). Run:  A Run generally means one telecast of the Motion Picture during a 24 hour period over the non-overlapping telecast facilities of unauthorized telecaster such that the Motion Picture is only capable of reception on TV receivers within a reception zone of such telecaster once during such period. A simultaneous telecast over several interconnected local stations (i.e. network) constitutes one telecast; A telecast over non-interconnected local stations whose signal reception areas do not overlap constitutes a telecast in each station’s local broadcast area.  In other words, a Run usually means one telecast during a 24 hour period.

(g). Playdate:  A Playdate generally means one or more telecasts of the Motion Picture during a 24 hour period over the non-overlapping telecasting facilities of an authorized telecaster,  such that the Motion Picture is only capable of reception on TV receivers within a reception zone of such telecaster during such period. In other words, a Playdate may include more than one telecast during a 24 hour period.

(h). Usage Reports:  The Licensee is generally required to provide the Licensor with each person or entity responsible for preparing a dubbed or subtitled version of the Motion Picture, and the time and place of each telecast of the Motion Picture since the previous notice to the Licensor.

(i). Commercials:  The Licensee is customarily only authorized to insert commercial announcements in the Motion Picture at those points designated by the Licensor. Additionally the Licensee is required to require each broadcaster to broadcast all credits, trademarks, logo’s, copyright notices, and other symbols appearing on the Motion Picture as furnished by the Licensor.

(j). Conclusion of Run or Playdates:  The License Period for each pay TV or Free TV Licensed Rights will generally end on the earlier of the conclusion of the last authorized Run or Playdate or the end of the License Period specified in the Deal Terms.  A License Period will not be extended because the Licensee failed to take all the authorized Runs or Playdates for any applicable License Right.

(k). Secondary Broadcast and Compulsory Licenses: Secondary Broadcasts are the simultaneous, unaltered, unabridged retransmission by a cable micro-wave or television system for reception by the public of an initial transmission by wire or over the air including by satellite of a Motion Picture intended for reception by the public. (In other words, when a Cable System transmits a Motion Picture simultaneously with the broadcast of the Motion Picture on a Free TV Station, a Secondary Broadcast exists).  In certain territories compulsory licenses are required to be paid for such Secondary Broadcasts, or royalties are payable or are required to be paid under local laws, or through collective management societies, or collective contractual arrangements.  The Licensor customarily reserves all the rights to make, authorize, and collect royalties for a Secondary Broadcast in a Motion Picture in territories where broadcasters may grant or withhold authorization for a Secondary Broadcast of their primary broadcast. The Licensee is required to notify each broadcaster to abide by the Licensor’s directions regarding Secondary Broadcasts including the prohibition of Secondary Broadcasts until after a date designated by the Licensor.

15.  Music:  Music is an important part of the motion picture licensing process.  In order to properly exploit the Motion Picture in any Territory in the world, the Licensor must show that the Licensor has acquired all music rights with respect to music embodied in the Motion Picture.  Once the Licensor is able to provide documentation of the Licensor’s control of such rights, the Licensor will also be entitled to collect various royalties for the performance and the reproduction of the music in the Motion Picture within the applicable Territory.

(a).  Cue Sheets:  The Licensor will customarily supply the Licensee with available cue sheets listing the composer, lyricist, and publisher of all music embodied in the Motion Picture.  The Licensee is generally required to promptly file with the appropriate governmental agency or music rights society in the Territory such music cue sheets without change.

(b)  Synchronization:  The Licensor generally authorizes the Licensee to exploit the rights to synchronize the music in the Motion Picture without charge in conjunction with its exploitation of the Motion Picture.  The Licensor is however customarily responsible for paying all royalties and charges necessary to obtain and control such synchronization rights during the Term of the Agreement and will customarily hold the Licensee harmless from any payments in this regard.

(c).  Mechanical Rights:  The Licensor also represents that the Licensor controls all rights to make mechanical reproductions of the music contained in the Motion Picture,  on all copies exploited by the Licensee in the Territory during the Term. The Licensor further authorizes the Licensee to exploit the mechanical rights without charge in connection with the Motion Picture.  The Licensor is also customarily responsible for paying all royalties or charges necessary to obtain and control the mechanical rights during the Term provided that if a mechanical or author’s rights to society in the Territory refuses to honor the authorization obtained by the Licensor’s mechanical license, in the country of origin of the Motion Picture, then the Licensee will become responsible for such licenses, royalties, or charges.

(d). Music Performance Rights:  The Licensor customarily represents warrants to the Licensee that the non-dramatic performing rights in each musical composition in the Motion Picture are:

(i). In the public domain, or

(ii). Controlled by Licensor, or

(iii). Available by license from the local music performance rights societies in the Territory affiliated with the International Confederation of Author’s and Composer’s Societies (“CISAC”).  In such event, Licensee is usually responsible for obtaining a license to exploit the performance rights from such local music performance rights societies.

(e).  Music Publishing Rights:  As between Licensor and Licensee, the Licensor is generally solely entitled to collect and retain the publisher’s share of any music publishing royalties arising from the Licensee’s exploitation of any of the Licensed Rights in the Motion Picture in the Territory.

16.  Suspension and Withdrawal

(a). Licensor’s Right of Suspension or Withdrawal:  The Licensor will customarily have the right to suspend delivery or withdraw the Motion Picture at any time if:

(i).  If Licensor determines that it might infringe on the rights of others or violate any laws, or

(ii).  If the Licensor determines that the Delivery Materials are unsuitable for manufacture of first class commercial quality exploitation materials, or

 (iii).  As a result of events and force majeure, or

 (iv).  If the Licensee refuses to accept delivery of the Motion Picture for any reason.

(b).  The Effect of Suspension:  The Licensee will customarily not be entitled to claim any damages for lost profits for any suspension. Instead, the Term of the Agreement will be extended for the Term of the suspension, however, if any suspension lasts more than three (3) consecutive months, than either party customarily may terminate the Agreement on ten (10) days written notice in which case the Motion Picture will be treated as withdrawn.

(c). Effect of Withdrawal:  If the Motion Picture is withdrawn, then the Licensor customarily either substitutes a Motion Picture of like quality mutually satisfactory to Licensor and Licensee, or must refund promptly all unrecouped amounts of the Minimum Guarantee paid to the Licensor and all unrecoupable Recoupable Distribution Costs.  The sole remedy of the Licensee is customarily to receive the substitute Motion Picture or the refund.  In most cases, the Licensee may not collect any lost profits or consequential damages.

17. Default and Termination. The default and termination provisions in the AFMA Agreement provide for customary default provisions for both the Licensor and Licensee, for failure to pay, or failure to honor their respective obligations under the Agreement, as the case may be, for bankruptcy and similar debtor/creditor situations, breach of warranty, and other customary default terms.

(a). Licensee’s Default:

(i). The License is in default if Licensor fails to pay any installment when due,

(ii). Licensee becomes insolvent, Licensor makes an assignment for the benefit of creditors, or seeks relief under any bankruptcy law,

(iii). Licensee breaches any material condition, term, condition or covenant of the Agreement, or

(iv). Licensee attempts to make any assignment, transfer, sub-license, or appointment without first obtaining the Licensor’s approval.

(v). Notice to Licensee: The Licensor will customarily be required to give Licensee notice of any claim of default. If the default is capable of being cured, the Licensee will have ten (10) days after receipt of notice to cure a monetary default and twenty (20) days after receipt of notice to cure a non-monetary default. If the default is incapable of cure or if the Licensee fails to cure within the specified time period, then the Licensor may proceed against the Licensee for available relief, including terminating the Agreement retroactive to the date of default, suspending Delivery of the Motion Picture, and declaring the Licensee in default.

(b). The Licensor’s Default:

(i).  The Licensor will be in Default if the Licensor becomes insolvent, or fails to pay its debts when due.

(ii). The Licensor makes an assignment for the benefit of Creditors or seeks relief under any bankruptcy law, or

(iii). The Licensor breaches any material Term, Covenant, or Condition of the Agreement. Any default by the Licensor is limited to the Motion Picture, and no Default by the Licensor as to one Agreement would be a Default as to any other Agreement with the Licensee.

(iv). Notice to Licensor: Licensee must give the Licensor notice of a claim Default. Licensor will have ten (10) days after receipt to cure a monetary default and twenty (20) days after receipt of default notice to cure a non-monetary default. If the Licensor fails to cure within the time period provided, then the Licensee may proceed against the Licensor for all available relief, provided, however, in no case may the Licensee collect any lost profits or consequential damages.

(c). Arbitration/Litigation: All disputes under the AFMA Agreement are resolved by final and binding Arbitration under the Rules of International Arbitration of the American Film Marketing Association.  Other agreements may provide for arbitration under the Commercial Arbitration Rules of the American Arbitration Association, while still other agreements may provide for disputes to be resolved in the applicable courts of the jurisdiction agreed upon by the parties.

18. Anti-Piracy Provisions:  In order to protect the Motion Picture against pirates, a number of Anti-Piracy Provisions have been developed and are included in the AFMA Agreement. These Anti-Piracy Provisions include the requirement that the Licensee include copyright notices and anti-piracy warnings on each copy of the Motion Picture, including all negatives, pre-print materials, release prints, masters, tapes, cassettes, discs, videograms, and their packaging.

(a). Copyright Infringement: The Licensee is required to take all necessary steps to prevent copyright infringement of the Motion Picture and prevent piracy. The Licensor may participate in any anti-piracy acts or action, using its own counsel and, the Licensor’s expenses will be reimbursed from any recovery in equal proportion to the Licensee’s expenses. If the Licensee fails to take any anti-piracy action, the Licensor may do so, and retain the entire Recovery for itself.

(b). New Technology: If new technology is developed which provides protection against unauthorized piracy or exploitation of the Motion Picture, then the Licensee is required to use any such technology in a reasonable manner and is entitled to deduct the cost of doing so as a Recoupable Distribution Expense after first obtaining the Licensor’s reasonable approval.

(c). Cooperation Against Piracy: The Licensor and the Licensee each agree to use  reasonable efforts to cooperate to prevent and remedy any act of piracy.

19. Warranties and Indemnities

(a). Licensor Warranties:  Licensor makes the customary indemnities with regard to title, and the right to grant all rights licensed under the Agreement to the Licensee, that the Motion Picture is free and clear of all liens, claims, and encumbrances, and that the Motion Picture does not infringe on the rights of any third party.

(b). Licensee Warranties:  The Licensee makes the customary warranties as to the authority to enter into the Agreement and the financial ability to perform all obligations under the Agreement, that there are no existing or threatened claims of litigation that could adversely affect the Licensee’s ability to perform, and that the Licensee will honor all restrictions in the exercise of the Licensed Rights and will not exploit the Licensed Rights outside of the Territory before the end of its Holdback or after its License Period.

(c). Indemnity:  Each of the parties indemnifies the other from the other party’s claims, costs or expenses arising out of breach of the indemnifying party’s representations and warranties.

20. Assignment and Sub-Licensing

(a). Licensee’s Limitations: The Agreement is personal to Licensee. It may not assign or transfer the Agreement or sub-license or use an agent without the Licensor’s approval.

(b). Licensor Assignment:  The Licensor is entitled to freely assign and transfer the Agreement, but the Assignment will not relieve Licensor of its obligations under the Agreement.

(c). Licensor’s Assignment for Financing Purposes: Customarily, in Motion Picture licensing transactions, the Agreement is assigned to a bank for purposes of obtaining production financing. Accordingly, the agreement is customarily used as a security for a lender, completion guarantor, or other financing entity. The Licensee is required, promptly on request, to execute a reasonable and customary Notice of Assignment, or security document, or similar instrument to establish and perfect the lending institution’s security interest in the Motion Picture. The Licensee agrees to abide by consistent written instructions from the Licensor in making any payments otherwise due the Licensor directly due the bank or other lending institution. The Licensee further agrees not to assert any offset rights against the lending institution or assert any rights it may have against the Licensor to delay diminish or excuse the payment of any sums pledged or assigned to the lending institution. Instead, the Licensee agrees that it will only treat such offsets or other rights as a separate and unrelated matter solely between the Licensor or the Licensee.

21. Miscellaneous Provisions

(a). The Agreement usually includes customary Miscellaneous provisions including Separability, Cumulative Remedies, Notices, Entire Agreement, Modifications in Writing, etc. which provisions appear in most International Motion Picture Licensing Agreements. The AFMA Agreement provides that the Agreement will be governed by and interpreted under laws by the State and Jurisdiction Specified in the Deal Terms, however, if none is specified, then California Law will apply. Additionally, if no forum is dictated in the Deal Terms, then the forum will be Los Angeles County, California, U.S.A., where disputes will be resolved.  Other agreements may provide for alternative forums, venues, and jurisdictions for the resolution of disputes in accordance with the agreement of the parties.

CONCLUSION

The international licensing of motion pictures is a process replete with decades of customs and practices developed over the years and can be complex when embarking on the road of licensing motion picture rights, it makes good sense to consult with an expert international motion picture licensing agent and/or international motion picture licensing attorney to help guide you through some of the potholes, roadblocks, and pitfalls.