Pre-Sales Agreement

"Pre-Sales" refers to the component of film-financing where a production pre-sells content rights long before ever actually making the content.

To put this into more detail...

Pre-sales agreements are commitments from distributors to purchase the rights to sell your intellectual property in a particular territory for a given period of time. Filmmakers take those commitments to a bank and use them as collateral to get loans to make their projects.

It’s not unusual for films to get funded with pre-sale distribution agreements (also known as “pre-sale financing”). And this involves signing a distribution agreement and gaining a cash advance to help cover some, if not all, of the film production budget.

Distributors might pay this out in full, through installments, or guarantee to pay a set amount as soon as the film is complete. But keep in mind that pre-sale financing can be a risky strategy. If a production fails to complete their production, they will still need to pay back the distributor in full.

Even if one can’t secure a distribution deal during pre-production, they still need to be thinking about their eventual audience. This target audience will determine the ideal distribution strategy. Film distributors do give preference to projects that come with a foundation audience. Having a strong social media following can help you gain a film distributor as well generally.

A simplified explanation...

Hank the filmmaker wants to make a movie. He finds a domestic distributor in the United States who’s willing to give him $2 million. (That includes his fee.) In exchange, they’ll get to distribute the movie everywhere, forever.

Hank thinks this is a great idea, so he takes their cash, uses it to make movie, pockets his fee, and turns the finished product over to the distributor. The distributor adds the content to their library and now they can exploit it anyway they like. They might show it in theaters, sell it to streaming services, or license it to TV networks. If they have complete control of the rights, they could license the IP to toy manufacturers, cereal brands, and theme parks.

Hank’s distribution agreement might entitle him to some overages (profit). But even if he is entitled to overages, the method of calculating Net Profits will make it so he never sees a fucking penny of that unless a) the movie does unbelievably well, and b) he has a lawyer who can bully the distributor into making a deal that pays in success.

The gist here is that by pre-selling the rights, Hank gets the money to make the movie. He didn’t have $2 million or more from another funding source, so this was the only way he could make his film.