Understanding Recoupable Expenses in Distribution Agreements

By: Murray A. Roth, Jr., Esq.

7/1/25

For Indie filmmakers, landing a distribution deal can feel like crossing the finish line. But before you sign on the dotted line, it’s crucial to understand the many elements and details of a film distribution agreement. Besides such important things as the term, territory covered, types of rights granted, and even the distribution fee, this article’s focus is on “recoupable expenses”— namely the costs that a distributor claims and deducts before the filmmaker ever sees a dollar of profit.

Too often, filmmakers are shocked to discover that even after their film earns money, they still don’t get paid. At least not initially. Why? Because the distributor always takes a distribution fee first—and then deducts recoupable expenses thereafter. This article is aimed at Indie filmmakers who have limited experience with distribution. And be warned:  The world of Indie distribution is a far cry from the collaborative spirit of film production, and the players involved are much, much different. This can be a shocking experience to filmmakers (and is usually realized only after the deal has been signed).

So first off, what exactly is a Distribution Fee?

For those unaware, the distribution fee is the distributor’s base compensation for handling the sales of the film. It’s usually a percentage of gross revenue—commonly ranging from 20% to 35%, but sometimes higher. For example, if a film makes an initial sale of $100,000 for say a streaming license, foreign rights sale, DVD deal, or a combination thereof, the distributor keeps its percentage fee right off the top.  If the agreed fee is 25%, that’s $25,000 right out of the gate.

But here’s the kicker: the distributor then deducts recoupable expenses from the remaining sum. These expenses include delivery expenses, marketing expenses, and more (sometimes questionably labeled costs). It’s only after both the distribution fee and recoupable expenses are deducted do you, the filmmaker, get paid.

What Are Recoupable Expenses?

Recoupable expenses are costs the distributor incurs to prepare, market, and/or release your film. These costs are divided into two main categories:

1. Delivery Costs; and

2. Marketing Costs

Let’s look at each more closely.

1. Delivery Costs – What They Should Be

Delivery costs refer to the technical and legal materials required to meet the specifications of theater owners, streaming platforms, broadcasters, networks and/or international buyers. It’s usually a one-time expense.

Legitimate delivery costs include:

-              DCP creation (Digital Cinema Package)

-              Closed captions and subtitles

-              M&E tracks (for foreign dubbing)

-              Chain of title documentation

-              E&O (Errors and Omissions) insurance

-              QC (Quality Control) and encoding

-              Music cue sheets and dialogue lists

2. Marketing Costs – The Slippery Slope

Marketing costs (also known as prints and advertising or P&A costs) cover promotional efforts tied to a film’s release and exhibition. These costs vary widely and are a common source of abuse in distribution agreements.

Legitimate marketing costs include:

-          Trailer and poster creation

-          Press kits and publicist services

-          Paid advertising and digital campaigns

-          Premiere screenings and launch events

-          Film festival and market submission fees

But there’s a major gray area that you must watch out for, namely film market expenses.

3.  Film Market Expenses: The Hidden Money Pit

In the film business, distributors often attend film markets such as the Cannes film market in France (Marche du Film), the American Film Market in Los Angeles (AFM), the European Film Market (EFM) in Germany, the Toronto market (and many others around the world) to pitch their slate of films—including yours. As a result, they may consider the costs of attending these film markets as "marketing expenses" and recoup the same from your film’s revenue.

Film market expenses can include:

-          Travel and lodging for all distributor company staff

-          Booth rental fees (which often can be in the tens of thousands of dollars)

-          Market registrations and passes

-          Dinners, networking events, and parties

-          Promotional banners and trailers

-          Advertisements in the “trades” – namely magazines available at the markets

-          Screening room rentals for your film

While some of these expenses will benefit your film directly (such as paid ads in the trades and screening room rentals), most are shared among the multiple films in the distributor’s slate. But oftentimes, these marketing expenses benefit the distributor’s brand more than the individual films that they represent. Worse, some expenses—like luxury hotels or cocktails with non-buyers—might have no meaningful connection to your film at all.

Common Abuses:

-          Charging 100% of shared booth costs to each film

-          Billing for parties, alcohol, or entertainment as “promotion”

-          Failing to individually present, pitch or screen a film

-          Inflating costs or using vague line items like “AFM – $15,000”

These examples are not always the case. Legitimate distributors usually don’t engage in such abuses.  But, if left unchecked, trouble can be tempting.

How To Protect Yourself

Negotiating the terms of a distribution agreement can be very difficult for filmmakers because the distributor usually has all of the leverage. Their contracts have been fine-tuned by lawyers, and distributors don’t ever want to change the language. But things such as price, term, territory and expenses have to be agreed upon for each individual project that a distributor takes on.

To protect yourself, the filmmaker, it’s very important to cap all delivery and marketing costs in the distribution agreement (e.g., no more than $5,000 for delivery items without approval or $25,000 in marketing). And delivery and marketing costs should be capped separately. Any reputable distributor will be willing to do this – it’s just a matter of how much. But never allow distributors to spend unlimited amounts on delivery or marketing costs—at your expense. It’s also advisable to demand itemized breakdowns in the distribution agreement of the types of marketing expenses that the distributor intends (and/or is obligated) to incur.

And let me say one last thing on marketing expenses: Distribution agreements will often give the impression (in a vague way) that “marketing” costs mean “paid advertising” that will be spent to promote the film. Although this might be true to a small extent and in limited circumstances, in the Indie world (especially with low-budget films), it’s hardly ever the case that an Indie distributor will spend funds on paid advertising (for example paid facebook campaigns and other social media buy-ins). In fact, distributors often encourage filmmakers themselves to incur these costs and take on such advertising efforts. So don’t be fooled on this one. Get the details up front, and get the costs capped.

Final Thoughts

Distribution can be the most opaque and frustrating part of the filmmaking journey—but it doesn’t have to be a financial black hole. It’s important to understand that distribution fees and recoupable expenses both come out of your film’s earnings before you receive anything. And many of those who appear to be trustworthy (usually those who throw the word “transparency” around like rice at a wedding) are not always acting in the best interest of the filmmaker. Many, if not most, are instead only looking to further their own financial interests. If the filmmaker profits also - fine. But their bottom line and profits come first.

That said, what often sinks Indie filmmakers isn't just bad-faith actors—it's vague contracts, undefined terms, and the lack of meaningful oversight on spending. From tricky contracts to mysterious film market charges, it's easy to lose control of your revenue before you ever see a statement.

But here’s the good news: you have more power than it may seem—especially before the contract is signed. When a distributor recognizes that the filmmaker is well informed and/or experienced in film distribution, many of the problems discussed in this article never arise. Predatory distributors are always looking to exploit inexperienced filmmakers who made a great film (domestic and international sales agents included). But they don’t ever want to be called out for unscrupulous behavior. By asking the right questions, negotiating clear caps, and pushing for accountability from the beginning, you can protect your film, your investors, and your future as a filmmaker.

A fair deal is always possible—but only if you know what to look for.

Disclaimer:  This article is provided for educational purposes only and is not intended to constitute legal advice. Before taking any action regarding this topic or any other legal issue, always consult an experienced entertainment attorney who can advise on your specific facts, films, and needs.