Production companies, especially small ones without the capital for theatrical films, naturally find themselves at a disadvantage when dealing with distribution companies. The industry chain and ecosystem dictate this; the foresight advantage cannot offset it.
Michael Davenport pondered for a moment and then said, "Can you elaborate?"
Navas roughly explained, "If we only consider distribution commissions, it's a 40% cut of all revenue. The second option is a 25% revenue cut, but promotional costs, distribution fees, copy fees, management fees, transportation fees, and insurance costs are calculated separately."
Michael sighed inwardly: Everyone is equally shady.
Production companies take advantage of investors, and distribution companies take advantage of production companies.
The terms offered by Navas were basically the same as those provided by Sony Entertainment.
Of course, Navas didn't make it a request, unlike Sony Entertainment, who said it was either their terms or no deal.
Negotiations always need some flexibility.
Michael didn't choose either option but instead pointed out Lionsgate's weakness: "Mr. Navas, as far as I know, Lionsgate doesn't have overseas distribution capabilities."
This was undeniable. Navas admitted, "Yes, Lionsgate is establishing overseas distribution channels." He added, "What I mentioned earlier pertains to the North American market."
Michael pressed on the weak point, "My goal is global distribution. Only handling North American distribution means I'd still have to find overseas distributors, do a lot more work, and possibly give up more concessions."
He had never intended to sell off the overseas distribution rights directly, but in negotiations, falsehoods always veiled the truth. A disadvantage can be cleverly turned into an advantage: "This doesn't meet my needs."
Navas scrutinized Michael, trying to glean something from his expressions.
Michael skillfully turned the unfavourable fact into a bargaining chip, "I spoke with Chris from Sony Entertainment two days ago. Sony offered a 30% distribution cut for North America and also agreed to handle the overseas push."
This was to let Navas know that "The Purge" wasn't without interest.
Navas didn't get rattled. Instead, he said, "Lionsgate's strategy is to focus on horror films, channelling the company's resources into them." He confidently smiled, "Regarding distribution channels, we can't compete with Sony Entertainment, but Mr. Davenport, Sony releases how many films a year? They won't invest much in your film."
Before Michael could speak, Navas continued, "Last year, Lionsgate only released 'Lolita,' and this year, we plan to release just two to three films. The big companies' smaller projects can't match our investment in each film."
Michael bluffed, "Sony promised to get 'The Purge' into theatres this year, ensuring Seashore Entertainment can quickly recoup its investment."
Recovering invested funds as quickly as possible is crucial as time itself is a significant cost.
Navas knew this well and said directly, "Lionsgate has no recent releases. 'The Purge' is already completed, and there are almost three months until Halloween. If we quickly reach an agreement, Lionsgate can fully support this film's release in time for the Halloween slot."
This was practically enticing Michael to agree quickly.
Releasing a major investment and big production can take over six months from post-production completion to promotional release, but for a film like "The Purge," two to three months is sufficient.
Of course, Hollywood's pace in film operations lags far behind the speed of Hong Kong cinema back in the day.
Michael spread his hands, "Just North America, with a 40% distribution cut, is too high, and there's no overseas distribution!"
Navas heard Michael lean towards the first option and said, "Lionsgate is very sincere."
Is this sincerity just lip service? Michael thought to himself.
He chose the revenue-sharing model as the distribution commission. The second option, which looks good, is also the choice of some newcomers to Hollywood, but since arriving in Los Angeles, Michael has been studying the industry's ins and outs. He reviewed cases and knew that under Hollywood's current accounting rules, the seemingly generous revenue-sharing minus expenses model had too many ways to legally manipulate figures.
It's best to touch this option with sufficient power and backing.
Never rely on the distributor's conscience and morals for self-restraint.
Capital's most excellent conscience is to maximize profit, right?
Michael smiled, "Mr. Navas, I'm new to Hollywood, but I know the industry's typical highest commission rate is 30% for North America and 40% for overseas."
Faced with such a difficult negotiator, Navas quickly decided that some concessions had to be made unless they abandoned the film. "35% for North America."
Michael remained unfazed, "30% for North American box office."
"Impossible," Navas shook his head without hesitation, "I meant 30% of the total North American revenue."
"Mr. Navas, Seashore Entertainment seeks a long-term partnership with a distributor," Michael countered. "'The Purge' is just the beginning. We plan to make a million-dollar investment in 'Final Destination' next, and I have funding channels from the Middle East, so production capital is not an issue."
"'Final Destination?'" Navas was intrigued.
Michael opened his briefcase, took out the script, and handed it over: "The director is still James Huang. After watching 'The Purge,' you must recognize his expertise in horror-thrillers."
Navas didn't respond, took the script, and flipped through it, raising an eyebrow. The premise was intriguing, much more potent than "The Purge."
Michael added, "This is just part of Seashore Entertainment's extensive production plans."
Navas immediately asked, "What else?"
"Sorry," Michael immediately played it safe, "The rest are confidential for now."
Navas nodded, understanding that many production companies kept projects confidential to avoid unnecessary competition before they reached the agenda. For confidentiality reasons, some projects even remained under code names during filming.
"You have sufficient funding?" he asked.
Even Lionsgate, backed by a large Canadian bank, had tight production funds.
Michael confidently replied, "Of course. Mr. Navas, you've heard that oil tycoons are particularly generous."
This reminded Navas of the Arab character in "The Purge," suddenly understanding why the Arab character ended up as the saviour.
Could Seashore Entertainment become a long-term, stable film source?
Navas quickly weighed the possibilities: the producer would bear the financing, production, and debt risks, while the distributor could still take a large share of the profits…
He closed the script and asked, "Will this film be produced?"
Michael replied confidently, "I'm not short of funds. No matter how 'The Purge' performs, it won't affect 'Final Destination.'" He added, "When 'Final Destination' is completed, Seashore Entertainment will prioritize Lionsgate under equal conditions."
Navas instinctively nodded, then shook his head. Why, even though the distributor held the absolute advantage, did it feel like he was following Michael Davenport's lead?
This young man is not simple.
Navas refocused, knowing that considering "Final Destination" and long-term film sources would weaken his position further. He got straight to the point, "State your terms."
Michael didn't relax despite gaining some initiative. He immediately said, "20% box office commission, Lionsgate invests at least $800,000 in promotion, and other revenue streams are calculated separately."
He added, "For promotional purposes, the film's public budget is $11 million."
What followed was a five-day tug-of-war negotiation. Navas brought in two more negotiation experts, while Michael brought Robert and George Clint to form a team.
After numerous rounds of bargaining, both parties finally signed a formal North American full-rights distribution contract on August 20th.
Lionsgate would take a 28% cut of the North American box office gross for "The Purge," including all distribution-related expenses. Lionsgate also committed to spending at least $500,000 on the film's North American promotion.
For ancillary rights, Lionsgate would take a 20% cut from video, DVD, new media, and TV rights revenue and a 50% cut from all merchandising revenue, which was standard in the industry.
Additionally, Seashore Entertainment would bear the auditing costs for any financial transactions between the two companies.
Michael had exhausted all his negotiating skills but couldn't change the fact that the distributor held the upper hand.
However, what relieved him a bit was that "The Purge" had now entered the promotion and distribution phase.