White Book of the European Exhibition Industry - Vol. 1

3 Relationships Governing Exhibition

3.1 Commercial relationships between distributors and exhibitors

Main contractual forms

In the exhibition sector, five different types of contractual relationships exist between distributors and exhibitors:

a proportional share of takings, without a guaranteed minimum

a proportional share of takings, with a guaranteed minimum

a proportional share with a minimum for the exhibitor

a fixed fee

the hiring of cinemas by the distributor.

The dominant form throughout almost all of Europe is that of a proportional share of the takings without a guaranteed minimum.

Some exceptions:

In Portugal, the most usual form is a proportional share of takings with a minimum guaranteed for the distributor. In certain countries (Spain, the Netherlands), the practice of guaranteeing a minimum has been revived for certain types of exhibitors (in the less-populated areas). It also exists to some degree in Belgium, Denmark and France.

Other types of contractual relations between exhibitors and distributors do exist in a marginal way: fixed fee occurs in Ireland, and, exceptionally, in Belgium; distributors hire cinemas in Portugal, etc.

Film rentals

Film rentals (the sums paid to distributors by exhibitors) are determined in most markets by the interplay of supply and demand. However, in certain countries rentals are fixed by agreements between the distributors' and the exhibitors' associations (particularly in Germany, in Italy and in the Netherlands). Only in France and Belgium does the law fix minimum and maximum levels for rentals (see Table 17).

The rental rates shown in Table 18 are generally calculated on the basis of box office net of sales and any special taxes. The estimates of average rentals presented here must be treated with caution: the "average" rental for each country does not reflect dominant commercial practice, particularly in relation to the largest players. Ireland springs to mind here - the average rental appears very low when compared with the EU average, but rentals paid by the circuits in Dublin are similar to those found in the United Kingdom (more than 40% of box office after tax). The lowest average national rentals reflect the existence of low fixed-fee rates offered to exhibitors in rural areas. Moreover, the exact average rental is very difficult to estimate accurately. Certain countries do not have precise statistics of the sector's turnover (Portugal and Greece), so in these cases the rentals we show are estimates.

Even so, comparison of rentals reveal significant differences. In Spain, Portugal, Belgium, France and Italy, average rentals are the highest, corresponding on average to around 50% of box office after tax. By contrast, in the UK, Ireland, the Netherlands and Germany, the exhibitors' share is higher. The hierarchy of rentals exactly shadows the hierarchy of national markets according to the level of involvement by the US majors in exhibition. One of the reasons US investment is attracted to a market is the prevailing rentals.

These differences can only marginally be explained in terms of the variations in the divisions of roles and responsibility for providing films between distributors and exhibitors. In general, the exhibitor does not bear the costs of the print. He participates in the local advertising of films, but takes no responsibility for any advertising costs at the national level. The only exception to this is the costs of shipping prints; they are paid entirely by the exhibitors in Belgium and Italy, and 50% in Denmark and the Netherlands. In the other countries (France, Germany, Portugal, the UK) these expenses are only met in certain cases by the exhibitors. In the Netherlands, a regulation currently in force splits the costs between exhibitor and distributors. Whatever the nature of the differences, they are not sufficient to explain the differences in rental rates between countries.

Finally, it is worth emphasizing that the formalisation of agreements by written contract is still far from being the norm. It occurs systematically in countries with trade associations, where it is recognised as being quasi-regulatory. In France and Germany, agreements have been announced to bring written contracts into general use.

Table 17a: Commercial relations between distributors and exhibitors

Belgium Denmark France Germany

Dominant form of commercial relationship
1 proportion of takings, no guaranteed minimum
2 proportion of takings, with guaranteed minimum
3 proportion with a minimum for the exhibitor
4 fixed fee
5 the hiring of cinemas by the distributor
1) Standard Practice
2) Marginal
4) For small exhibitors 1) Standard 4 exhibition groups Þ 4 methods of remuneration (%)
2) Guaranteed minimum = at least 650DKr 1)Standard (1)
2) Minority (3-4%) of screens (in the suburbs), the regions (south) and small towns Germany
1) Standard practice
2) Marginal (for small exhibitors) (260-300DM)

Average rentals

Proportion paid to the distributor
(as a % of box office net of tax)
49% of box office net of tax 47% of box office net of tax 47% of box office net of sales and tax and TSA (2) 45% of box office net of tax (negotiated at national level for each film by the Associations)

Expenses covered by the exhibitor

1) Prints
2) Advertising
3) Shipping of prints 1) Rarely
2) Local advertising
3) Yes 1) No
2) Local advertising
3) 50% (one way) 1) No
2) Local advertising and publicity
3) Varies 1) No
2) and 3) Paid by the exhibitor with a contribution from the distributor

Formalisation of agreements between parties

Written contracts
Verbal agreements Telephone agreements first, then written follow Mixed Verbal agreement until 1992 - a recent law enforced the obligation of a written contract 1) yes, very short (contracts negotiated by the associations)

Regulations fixing the method of remuneration of the said parties. A ministerial order, based on an all-industry commission: fixed guaranteed minimum and maximum rentals Conditions are fixed by the four sets of distributor/exhibitor negotiations (rental fixed at 25% for small cinemas by the Danish Film Institute for national films) Fixed by the CNC: minimum rental 25%, maximum 50% (no regulation concerning a guaranteed minimum) Rental and terms fixed nationally by the exhibitors' and distributors' associations (between 36% and 53.5% of box office net of tax)

(1) Decreasing rental after three months
(2) Higher where a minimum guarantee is provided

Table 17b: Commercial relations between distributors and exhibitors

Ireland Italy Netherlands Portugal

Dominant form of commercial relationship

1 proportional share of takings, no guaranteed minimum
2 proportional share of takings, with a guaranteed minimum
3 proportional share with a minimum for the exhibitor
4 fixed fee
5 the hiring of cinemas by the distributor 1) Standard (Dublin = House nut, others: number of seats)
4) For small rural cinemas 1) Standard
2) Marginal (small cinemas) 1) Standard
2) In some cases
(guaranteed minimum very low - Fl 200-250) 2) Standard
5) Marginal

Average rentals

Proportion paid to the distributor
(as a % of box office net of tax) 33% of box office net of sales tax (1) 50% of box office net of sales tax (30 - 53% of box office net of tax) 39% of box office net of tax Around 50% of box office net of sales tax

Expenses covered by the exhibitor

1 Prints
2 Advertising
3 Shipping of prints
No, except in exceptional cases 1) No
2) Local promotion and advertising
3) Yes 1) No, except in exceptional cases
2) Partially
3) Partially at the expense of the exhibitor Mixed

Formalisation of agreements between parties
Written contracts
Verbal agreements
National: written contracts
Local: verbal agreements Written contracts in principal, verbal modifications Mostly verbal

Regulations fixing the method of remuneration of the said parties. None Industry agreement between ANICA/UNDF (National Union of Distributors) and AGIS/ANEC (2) (National Association of Exhibitors) Industry agreement (between exhibitors' and distributors' associations) None

(1) Reduced because of reduced rates offered to small rural cinemas
(2) Amounts fixed by categories of towns and cinemas

Table 17c: Commercial relations between distributors and exhibitors

Spain UK

Dominant form of commercial relationship

1 proportional share of takings, no guaranteed minimum
2 proportional share of takings, with a guaranteed minimum
3 proportional share with a minimum for the exhibitor
4 fixed fee
5 the hiring of cinemas by the distributor 1) Standard for 80% of screens
2) Marginal
3) No
4) For cinemas serving small local markets
5) No 1) Standard practice
("break figure" or "house nut")
Others: marginal

Average rentals

Proportion paid to the distributor
(as a % of box office net of tax) 53% of box office net of tax (estimate) (56% of box office net of tax for cinemas which practise straight box office splits) 41% rental net of sales tax (VAT)

Expenses covered by the exhibitor

1 Prints
2 Advertising
3 Shipping of prints 1) No
2) Local promotion
3) No 1) No
2) and 3) sometimes (small exhibitors)

Formalisation of agreements between parties

Written contracts
Verbal agreements Written contracts
Verbal agreements, sometimes Written contracts (SFD standards)

Regulations fixing the method of remuneration of the said parties. Level of fixed prices for small cinemas fixed by the associations (Agreement generally not respected by distributors) None

Table 18: Average rentals by country
Country	Average rentals
Belgium	49%
Denmark	47%
France	47%
Germany	45%
Greece	50%
Ireland	33%
Italy	50%
Netherlands	39%
Portugal	50%
Spain	53%
UK	41%
European Average Unweighted Weighted	46% 47%

Table 17a: Commercial relations between distributors and exhibitors
	Belgium	Denmark	France	Germany
Dominant form of commercial relationship 1 proportion of takings, no guaranteed minimum 2 proportion of takings, with guaranteed minimum 3 proportion with a minimum for the exhibitor 4 fixed fee 5 the hiring of cinemas by the distributor	1) Standard Practice 2) Marginal 4) For small exhibitors	1) Standard 4 exhibition groups Þ 4 methods of remuneration (%) 2) Guaranteed minimum = at least 650DKr	1)Standard (1) 2) Minority (3-4%) of screens (in the suburbs), the regions (south) and small towns	Germany 1) Standard practice 2) Marginal (for small exhibitors) (260-300DM)
Average rentals Proportion paid to the distributor (as a % of box office net of tax)	49% of box office net of tax	47% of box office net of tax	47% of box office net of sales and tax and TSA (2)	45% of box office net of tax (negotiated at national level for each film by the Associations)
Expenses covered by the exhibitor 1) Prints 2) Advertising 3) Shipping of prints	1) Rarely 2) Local advertising 3) Yes	1) No 2) Local advertising 3) 50% (one way)	1) No 2) Local advertising and publicity 3) Varies	1) No 2) and 3) Paid by the exhibitor with a contribution from the distributor
Formalisation of agreements between parties Written contracts Verbal agreements	Telephone agreements first, then written follow	Mixed	Verbal agreement until 1992 - a recent law enforced the obligation of a written contract	1) yes, very short (contracts negotiated by the associations)
Regulations fixing the method of remuneration of the said parties.	A ministerial order, based on an all-industry commission: fixed guaranteed minimum and maximum rentals	Conditions are fixed by the four sets of distributor/exhibitor negotiations (rental fixed at 25% for small cinemas by the Danish Film Institute for national films)	Fixed by the CNC: minimum rental 25%, maximum 50% (no regulation concerning a guaranteed minimum)	Rental and terms fixed nationally by the exhibitors' and distributors' associations (between 36% and 53.5% of box office net of tax)
(1) Decreasing rental after three months (2) Higher where a minimum guarantee is provided

Table 17b: Commercial relations between distributors and exhibitors
	Ireland	Italy	Netherlands	Portugal
Dominant form of commercial relationship 1 proportional share of takings, no guaranteed minimum 2 proportional share of takings, with a guaranteed minimum 3 proportional share with a minimum for the exhibitor 4 fixed fee 5 the hiring of cinemas by the distributor	1) Standard (Dublin = House nut, others: number of seats) 4) For small rural cinemas	1) Standard 2) Marginal (small cinemas)	1) Standard 2) In some cases (guaranteed minimum very low - Fl 200-250)	2) Standard 5) Marginal
Average rentals Proportion paid to the distributor (as a % of box office net of tax)	33% of box office net of sales tax (1)	50% of box office net of sales tax (30 - 53% of box office net of tax)	39% of box office net of tax	Around 50% of box office net of sales tax
Expenses covered by the exhibitor 1 Prints 2 Advertising 3 Shipping of prints	No, except in exceptional cases	1) No 2) Local promotion and advertising 3) Yes	1) No, except in exceptional cases 2) Partially 3) Partially at the expense of the exhibitor	Mixed
Formalisation of agreements between parties Written contracts Verbal agreements		National: written contracts Local: verbal agreements	Written contracts in principal, verbal modifications	Mostly verbal
Regulations fixing the method of remuneration of the said parties.	None	Industry agreement between ANICA/UNDF (National Union of Distributors) and AGIS/ANEC (2) (National Association of Exhibitors)	Industry agreement (between exhibitors' and distributors' associations)	None
(1) Reduced because of reduced rates offered to small rural cinemas (2) Amounts fixed by categories of towns and cinemas

Table 17c: Commercial relations between distributors and exhibitors
	Spain	UK
Dominant form of commercial relationship 1 proportional share of takings, no guaranteed minimum 2 proportional share of takings, with a guaranteed minimum 3 proportional share with a minimum for the exhibitor 4 fixed fee 5 the hiring of cinemas by the distributor	1) Standard for 80% of screens 2) Marginal 3) No 4) For cinemas serving small local markets 5) No	1) Standard practice ("break figure" or "house nut") Others: marginal
Average rentals Proportion paid to the distributor (as a % of box office net of tax)	53% of box office net of tax (estimate) (56% of box office net of tax for cinemas which practise straight box office splits)	41% rental net of sales tax (VAT)
Expenses covered by the exhibitor 1 Prints 2 Advertising 3 Shipping of prints	1) No 2) Local promotion 3) No	1) No 2) and 3) sometimes (small exhibitors)
Formalisation of agreements between parties Written contracts Verbal agreements	Written contracts Verbal agreements, sometimes	Written contracts (SFD standards)
Regulations fixing the method of remuneration of the said parties.	Level of fixed prices for small cinemas fixed by the associations (Agreement generally not respected by distributors)	None