Collection Account Management – Transparency & Dealmaking in the film industry
History? How did it happen? And why? Also, how the film industry adapted to it and why it adapted ?
Originally, I worked as a film financier. As you know, financing is a challenging business in the film industry, as most films are not profitable. And then we looked at what the National Film Trustee Company (NFTC) had been doing in the UK since the early 70-ies, and, as it seemed to be a service for which there was a clear need, and not just in the UK, we decided to take their service worldwide, starting in Europe and the US.
It started slowly, with only two deals in the very first year, in 1994. The main boost of the service happened a few years later, when a sales agent discovered it as a marketing tool and decided to use it for all their movies. They used it to sell their sales services to producers: “Look, the only thing we do is sell your movie, we don’t touch the sales revenues, we have a collection account manager to deal with the money side of it, so you can trust us with your title. The collection account manager will receive and pay the revenues as described in the CAM agreement.”
At the time, sales agents generally did not have a great reputation with producers, financiers, and investors. The sales agents using our services were more professional. As a result, a number of those sales agents rapidly grew their business.
The views in the business have shifted, but certainly initially, our business was driven by the lack of integrity in the industry, as often “a contract wasn’t worth the paper it was written on”.
What collection account managers do is to remove temptation, by making sure the money doesn’t go through the sales agent’s or the producer’s bank account, unless it is their entitlement.
We definitely increased trust in this business.And, subsequently also the deal making in the industry changed, because the talent was able to more comfortably negotiate deferments and profit participations, knowing that there would be someone there to make sure that, when due, those would actually be paid.
Then we tried to get the talent agencies involved, to require CAM Agreements, but it was mostly the talent lawyers who started to require them, to protect their talent clients’ financial interests.
And at the same time film finance lawyers who represented investors, decided to make it a condition for financing by their clients, as they were looking at it from a professional liability point of view, deciding that they might be liable if they did not require it on their clients’ behalf.
The US guilds (SAG-AFTRA, DGA and WGA) should also be mentioned as important drivers of the service, as they discovered that residuals would more likely be paid if a collection account manager was involved.
You’re called a “collection account manager” but how does it work? What does “collect” exactly mean? Do you have any legal means to enforce payment by buyer?
Excellent question, because a collection account manager does not collect. Let me explain. Years ago, we discussed internally that we change the name to “disbursement agent” which basically means receiving and allocating revenues and subsequently paying out the correct entitlements to each party involved in the project. “Collection”, which means chasing payments, is therefore a misleading term. But as the industry knew us as collection account managers, we decided to let it go. As collection account manager we act as a trusted third party.
And actually, collection is the role of sales agents. If a payment is pending, it’s up to the sales agent, who signed the deal with the buyer, to go after the buyer for payment. As collection account manager you cannot collect, as you normally don't have a legal relationship with the buyers.
That being said, sales agents are often in a difficult position to chase. On the one hand they need to sell new films to buyers, and on the other they need to chase them if amounts due go unpaid. They need to evaluate carefully how hard they can chase for payment, as they also need to keep good relationships with their clients to sell the new titles, while on the other hand producers, for whom they act as agents, need them to get the payments in.
Due to the ambivalent position of sales agents, there are other companies providing a separate service to chase payments and to audit distributors. The producer should discuss this in advance with the sales agent, so that everyone is on the same page from the start, as to what everyone’s role will be when there are issues with payments and reporting.
How did this business develop? I mean, commercially, did you try to convince the sales agents they’ll appear more trustworthy or the producer, so they will get their actual share?
We did both, however, reaching out to producers is time consuming because there are more producers, and if you’re lucky, they’ll make two or three films a year, but most of them don’t. We mainly approached the sales agents because they’re dealing with a lot of films at the same time.
And we also talked to the production lawyers with the argument that a collection agreement would help producers:
- To outsource a labor-intensive job
- To help them to attract investors
- To help them to attract talent - easier to get talent to agree to deferments and profit participations
- To deal with guild residuals
And at the end of the day the sales agents are definitely the biggest client of our service.
makes a good collection account management agreement?
The agreement itself consists of two main instructions, the first one is straightforward, the other is more elaborate:
- The sales agents must instruct every distributor to pay into the dedicated bank account (collection account) of the show. And therefore, you have to work with a sales agent who you can trust to do that.
- The collecting account manager must immediately report incoming payments, produce regular statements (monthly, quarterly or annually), which show where the revenues came from, and how they are allocated, which means correctly executing the core of the CAM agreement, which is the recoupment schedule (or waterfall).
Considering that the service has to be running during the economic lifespan of a movie or a tv show - normally 5 years or more, the agreement, and specifically the waterfall, has to be very clear and indisputable. There should be no room for interpretation, so the drafting has to be perfect.
And as collection account manager you have to be strong when it comes to resolving the rare disputes between parties, as effectively you are acting as mediator, to try and avoid that the parties feel they need to go to arbitration or to court.
What is then the insurance for the producer?
There are two main benefits for the producer:
- That the sales agent and the producer don’t need to take the responsibility for dealing with potentially large amounts of money.
- The outsourcing of allocating and paying out revenues, producing statements and the assurance that it is done correctly.
Because at the end of the day, it’s big job to properly create and execute the waterfall, produce accurate statements, and to timely make the payments to everyone involved. A collection account manager is definitively beneficial.
Fun fact, we once received an email from a distributor in Thailand asking us to repay his installments. We asked why he wanted his money back and he told us that the sales agent had told him to pay directly to the sales agent's bank account. As the sales agent was also bound by the CAM Agreement, we obviously did not do that. And it also became clear how this sales agent looked at agreements in general and CAM agreements in particular…
What type of projects? Big/major ones?
Very small, very big and everything in between. Years ago, I was at the AFM, in a meeting with an English producer who desperately needed a collection account manager as he was unsure about his sales agent. I then asked him the usual questions, including about the budget of the movie. It was $100K. I indicated to him an off-the-top fee of $10K and a 3% commission, totaling well over 10% to be paid to us, therefore well in excess of the usual 1 or 2%. And although it was relatively expensive, this producer told me he “needed our service as an insurance” and looked at it as an insurance premium, and still wanted to go for it and we signed the CAM agreement. The movie made around $130K and the producer got his money!
What would be the proportion of movies requesting the services of a Collection Account manager?
On a worldwide basis it is a small percentage. Hard to assess as I think you would need to look at the number of films for which it would be useful - and one condition is that films and tv shows are sellable internationally.
How would you explain that?
Sometimes there is a lack of knowledge, it takes time to put together all the terms agreed with the sales agent, co-producers, guilds, financiers, investors, talent, investors, completion guarantor, film funds, and to get everyone to agree to the recoupment schedule. In general, it takes 3 to 6 drafts to get to a signature version of the CAM agreement, but it can be more. But when it is signed, you are set for the lifetime of the project.
Back in the days, producers would sometimes come to us with a box of contracts and ask us to create a waterfall from scratch. Those days are over, as they now tend to keep track of everyone’s recoupment positions, while they negotiate with all involved. And they now know that the profit participation percentages can actually not exceed 100%, which is something we used to see in the past.
And what helps too, is that we started to provide producers with a sample waterfall. The order is always similar; CAM fee off-the-top, guilds, the sales agent’s commission and expenses, and then the investors and financiers, deferments to talent, completion guarantor and then the profit participants.
And if the option occurs, producers have learned to include the fees for the collection account manager in the budget.
What about the notification of receipts? Who’s in charge of letting everyone know that monies were received?
The collection account, in which distributor payments are received, is owned by the collection account manager. So the collection account manager knows when money is received and when that happens will immediately let the parties know - currently by email.
The sales agent usually has an obligation to provide sales reports. These sales reports are to be received by the collecting agent and the producer before being entered into the collection manager’s database, such as MovieChainer.
Even the best sales agent might not always be as on top of things as they should be, but at least, when money hits the collection account, they have to provide a copy of the distribution agreement, so that everyone knows the details of the deal that was done. Another advantage of having a collection account manager involved.