What is a Recoupable Expense in Independent Film Distribution?
Filmmakers Ask me about Recoupable Expenses all the time. A lot of filmmakers think that recoupable expenses mean money they have to pay. Except in some VERY limited circumstances, that’s not the case.
A recoupable expense is simply an expense that a distributor or sales agent fronts to your film. Another way of looking at this is that your distributor is your last investor, as they’re putting in a zero-interest loan in the form of paying for fees and services necessary to take the film to market. Most of the time, the distributor will need to get that money back before they start paying the filmmaker. Distributors and sales agents have businesses to run and generally put money into anywhere between 24 and 60 films every year. Without the ability to recoup what we put in, distributors would not be able to continue to invest in new films.
Before we really get into what each type of recoupable expense is. There are generally 2 or 3 types. Capped, uncapped, and Uncovered Expenses. Here’s what they mean.
Capped Expenses
These are expenses that fall into a cap that cannot be exceeded by the distributor. It’s normally a total cap that encompasses all expenses listed in an appendix. If the expense is listed as capped, it is generally a total cap, not an individual cap. A lot of filmmakers ask for individual caps but most distributors won’t do that. We did at Mutiny for the sake of transparency, but probably caused more problems than it solved due to confusion around the expense system.
Generally, there’s a reserve for capped expenses that often just ends up being the total amount of the expense cap. This should be too bad as most of the capped expenses will be spent getting the film ready to take to market.
Examples of Capped Expenses
This is not meant to be a complete list, but it is some of the most common examples. (I did take these from my Appendix B, but I added a few.)
Key Art Generation
DVD Art Generation
DVD Menu Generation
Trailer Generation
Aggregation fees
M.O.D. Listing Fees
ISBN listing fees
Publicity fees (generally Cross Collateralized with other clients at the same stage.)
Social Media Advertising
Market Fees.
Minimum Guarantee (If Any)
These are all parts of bringing a film to market that are largely unavoidable. Personally, I don’t spend the money if I don’t need to. Like, if the film has a phenomenal trailer and key art, I don’t make new key art or cut a new trailer. As a result, I don’t charge for those expenses. This decision is solely at the discretion of the distributor, generally speaking. Also, this is very much the rarity.
Market fees will often be on the recoupable expenses (They’re not on mine, but that’s another story.) However, if they are there they should definitely be cross collateralized. No single film should bear the total cost of market fees for a slate.
Uncapped Expenses
Uncapped expenses are exactly what they sound like they are. That said, they’re not necessarily as scary as they sound like they are, providing that you’re not dealing with a predatory sales agent or distributor. Expenses a distributor covers but are not subject to caps. These expenses are generally things that you’d often want to go higher, as it means more sales are being made. Look at the examples below.
Examples of Uncapped Expenses.
Again, this is not a complete list.
Physical Media Replication.
DCP Generation.
Errors and Omissions Insurance (as needed)
Any expense outlined in As Needed deliverables.
4-Walled Theaters (Upon Mutual Agreement in Writing)
In order to replicate more DVDs & Blu-Rays, a distributor must be selling them. You want them to do that. In order to generate more DCPs the Distributor must be booking theaters, which is generally a good thing. Errors and Omissions insurance is generally only required for large PayTV or SVOD deals (like Netflix, Hulu, Starz, Showtime, and HBO) or broadcast deals. As such, if you need E&O you probably got a big SVOD or Broadcast deal.
Related: Indiefilm Media Right Types
Regarding needed Deliverables, there are some deliverables that a re only needed in very limited circumstances like Beta Tapes, and others. There are reasons for each of them, but they get added beyond the cap as they’re difficult to anticipate. Here’s the relevant section of a series I wrote on distribution deliverables.
Related: Distribution Deliverables 4/4 - As Needed Deliverables.
Uncovered Expenses
Uncovered expenses is generally anything not listed in the appendix, although some expenses may not be covered like the 4-Walled Theaters listed above. These are expenses that the filmmaker may be invoiced for. They are rare, and the filmmaker SHOULD have advance notice of them.
Some exceptions
For a long time I thought the term “Recoupable expense” was self-explanatory, but given all the questions I’ve gotten about it, I thought I would make sure it was said completely plain. As stated right at the top, most of the time, the filmmaker is not liable for unrecouped expenses. There are two primary exceptions. The first is the uncovered expenses above, where filmmakers will be invoiced immediately. This is rare, and generally VERY transparent. If it’s not, that’s another issue.
The other exception is generally if the filmmaker tries to take the film back prior to the close of the full term of the contract while expenses remain to be recouped. That's also normally spelled out in a contract.
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