Written by Camille De Beus and Ronen Segev

When signing a distribution deal, a non-payment clause might be one of the most important legal clauses to include. Here's why:

You’ve put the hours in, you’ve put the blood and sweat in, you’ve even put in a few tears; through grit and determination, you’ve gotten your work funded and produced. Now, finally, you’re ready to sell your film.

You market the film for sale and exciting news has arrived: a distribution company wants to put your film on Amazon and Hulu for all the world to see.

But first…. you need to sign a contract.

Money matters, after all.

When most filmmakers embark on the contractual phase, their main focus is what the revenue split will be and whether they will get a minimum guarantee, or "upfront", payment. They focus on those areas with the assumption that if a contract says they’ll be paid a certain amount on a certain date, then, of course, they’ll be paid on that date.

But what happens if the check gets “lost in the mail” and ultimately never comes?

The Tale of Soulless Chicken Soup, in a Nutshell

Take, for example, the recent blowup with Chicken Soup for the Soul for the Entertainment (CSSE) (a publicly traded distribution and production company), as first reported by the Park Avenue Pianos Steinway Piano Blog and covered in great depth by Variety.

Here’s what happened with CSSE:

  • CSSE allegedly stopped paying agreed-upon revenue payments to filmmakers. (CSSE distributes films to popular streaming platforms like Amazon, Hulu, and iTunes).
  • The list of impacted films includes those with 1091 Pictures, which CSSE had acquired.
  • Legal action commenced against CSSE, with Filmmakers like James Fox and Seth Breedslove filing suits, including both State Court and Small Claims Court cases.
  • CSSE CEO Bill Rouhana acknowledged the company's "cash flow issues."
  • Filmmakers are concerned about the possibility of CSSE filing for bankruptcy, which could lead to their films being seized as assets. Then they can’t show or stream their film anywhere until the bankruptcy proceedings are resolved, which could take years.
  • Filmmakers not receiving payments sought the release of the rights to their films from CSSE/1091, but received no response.
  • The CSSE scandal is not alone. Film distribution company Passion River also withheld payments from many filmmakers it had signed.
  • “Earlier this year, they told us that they had sold their 'assets but not liabilities' to another distributor,” filmmaker Pat Murphy who had his film "Psychedelia" signed with Passion River said. This means the new distributor does not owe any back payments to the filmmakers.

What This Means for Independent Filmmakers Like Yourself

The bottom line is: if you aren’t paid, the rights of your film need to be transferred back to you immediately.

Your contract needs an affirmative clause that states the aforementioned—a non-payment clause. It acts as a safety net, ensuring you will not have to go to court or spending years of your life trying to interpret a document.

We consulted entertainment lawyer George Rush who emphasized the need to carefully review distribution contracts, focusing on payment clauses.

“Payment clauses must detail payment specifics, schedules, revenue sharing, and penalties for non-compliance,” Rush said. “Despite discussing owed revenue percentages and payment timelines, many filmmakers' contracts with CSSE lacked specific consequence for payment failures.”

In particular, it should be clear that an uncured failure to make payment after a reasonable period is a material breach that would result in a reversion of rights back to the filmmaker.

You should also insist on a bankruptcy clause, one that ensures that if the company files for bankruptcy, your film rights automatically revert back to you.

Sometimes with a small distributor, they won’t agree to those terms, and perhaps because there is not another option, filmmakers sign these agreements that are imperfect. If that is the case, it is very important to be extremely proactive if you do not receive a statement or payment. It is imperative that you contact them in writing and demand what you are due. If a distributor is indeed going under and you are affirmatively attempting to correct the situation, it is often easier for the distributor to rescind the agreement rather than deal with you. If you wait until they file for bankruptcy, the rights to your film will be considered an asset and it is much more difficult to get the rights back.

Learning from The Cautionary Tale of CSSE for Independent Filmmakers

The CSSE controversy serves as a wake-up call for indie filmmakers. The takeaway? Do not enter into a standard contract. Always include non-payment and bankruptcy clauses, so the rights to your film go back to you if the distributor doesn’t pay up or files for bankruptcy.

We advise you to always seek legal counsel before signing a contract to ensure you understand the payment structures within the contract.

Filmmakers who navigate distribution contracts with wisdom, backed by legal insight, stand better poised to secure fair compensation and mitigate potential disputes in their creative journey. The film distribution landscape might be shifting, but you don't have to let it. Make sure you're the one calling the shots!