Independent audiovisual projects generally have a so-called recoupment schedule.

The recoupment schedule, often also referred to as the waterfall, is the project’s payment schedule. It essentially describes how the revenues generated from international distribution are allocated and disbursed. Sometimes other revenue streams, like festival receipts, merchandising income or surplus of tax credit proceeds are also included.

Any audiovisual project, whether it is feature film, a TV series, a web series, a documentary, an animation project, or a video game, can have a recoupment schedule.

In this article we will explain why and when a recoupment schedule is needed, and how the recoupment schedule is put together.

Why does an Audiovisual Project have a Recoupment Schedule?

The reason an audiovisual project needs a recoupment schedule, is because of multiple beneficiaries and multiple agreements.

Any audiovisual project that is independently produced, will have at least two, and often multiple beneficiaries. A beneficiary is each person that is entitled to receive a share of the revenues.

An independent production may be produced by two or more production companies.

Often, the production costs of the project are covered by several financial sources, to finance the production. This means that there are several external financiers and investors involved, who are entitled to recoup their financing and investments (with premium) from the revenues.

The distribution rights of the project are often sold by an international sales agency.

Furthermore, individual producers, writers, actors, and directors – together referred to as talent – may defer part of their fees and receive box office bonuses and profit participation if the project performs well.

Also, writers, actors and directors, and other individual talent, may, as guild members, be entitled to receive so called residual payments from the revenues in accordance with the basic agreements applicable in the audiovisual industry. For more info, please check out my previous article on Stage 32 about payment of US guild residuals.

All the above beneficiaries enter into individual agreements with the production.

An independent production deals with several agreements. These may include co-production agreements, financing agreements, sales agency agreements and talent agreements.

These agreements are stand-alone contracts and contain information as to how and when the beneficiaries will be paid their share of the revenues.

The recoupment schedule combines the single financial deal terms from all agreements, into one payment plan.

When is a Recoupment Schedule Needed?

The recoupment schedule is needed when the project starts to generate revenues. And revenues are being generated after sales and distribution of the project.

Although there may be several years between the various stages of the project - development, production, and distribution – the recoupment schedule starts to get shape as of the moment that producers, financiers, talent and sales agents enter the project.

The recoupment schedule continues to be negotiated and elaborated during all the stages of the project’s life cycle and may need to be adjusted each time changes occur to the production, financing or distribution structure of the project.

How to Put Together the Recoupment Schedule

To elaborate the recoupment schedule, it is important to understand the manner and the order in which revenues are allocated and paid out, whereby the single deal terms of all the individual agreements are to be taken into account.

The manner refers to the way payments are done from revenues. To whom are payments done, to companies or individual beneficiaries? In which currency are payments made: US Dollar, Euro, Pound Sterling or otherwise? Are payments done from all revenues or a particular portion of the revenues, for example from a specific territory only? When will disbursements start and when do they stop?

The order is about the priority in the recoupment schedule. Who recoups in first position? Are payments to financiers done at the same time, or one after the other? When are box office bonuses and profit participations paid?

The manner and order in which entitlements are payable out of revenues, are indicated in the underlying agreements. Leading for the financiers, can be the financing structure of the project.

Although each project is different and rules as to how to design the recoupment schedule are not written in stone, there are certain rules of thumb which will help the production to elaborate the recoupment schedule:

• In first position comes recoupment of bank financing.
• Right thereafter, guild residuals are paid to the guild members, and other off the tops may be payable.
• Then, the sales agent is paid its sales commission and expenses.
• Thereafter, equity investments are recouped
• Then, producer fees, deferments, and box office bonuses become payable.
• Finally, once the total production costs of the project have been repaid, effectively reaching break-even point, the net profits are payable to the profit participants.

For the recoupment schedule to rule over all the individual deal terms, it is important that all parties with a major financial interest in the project approve the recoupment schedule.

An effective way to execute the recoupment schedule is for the production to enter into a collection account management agreement, or simply CAMA.

The CAMA is a multi-party agreement signed by all parties with a major financial interest in the project. The CAMA overrules all other, underlying agreements, with respect to allocation and disbursement of revenues.

Typically, a collection account is set up in the name of a neutral, independent, third party collection account manager (CAM) who is the only party appointed to receive, allocate and pay out revenues to the multiple beneficiaries.

The CAM strictly follows and carries out the recoupment schedule, as incorporated in the CAMA. This mechanism guarantees that each beneficiary receives his or her share of the revenues correctly and on time. If a CAMA is set up, the CAM receives its CAM fees and recoups its expenses off the top in the recoupment schedule, with, if applicable, only recoupment of bank financing ahead of it.

If you want to know more about collection account management, check out this article on Stage 32.

Conclusion

Independently produced audiovisual projects generally have a recoupment schedule. The reason a recoupment schedule is needed, is that the project is based on multiple agreements and that several beneficiaries share in the revenues. How to put together the Recoupment Schedule, depends on the manner and order of amounts payable out of the revenues.

This is described in the underlying agreements. It is important for the recoupment schedule to be approved by all parties with a major financial interest in the revenues. The production may decide to enter into a collection account management agreement, to create one leading legal instrument that deals with allocation and disbursement of revenues.

Do you want to know more about the recoupment schedule and how to create one for your project? Let’s connect!