Licensing is the process by which a distributor acquires the legal right to exploit a film. In distribution, licensing itself can take place on two levels.
International distribution ensures that films find their way to the 90+ market 'territories' around the world. The major US studios generally have their own distribution offices in all the major territories. By contrast, independent producers have to sell their films to different distributors in each territory. Independent production companies are usually small concerns, sometimes set up for one film and often lacking the necessary knowledge or contacts of each of the territories around the world. Instead of doing this themselves, they might choose to hire a specialist sales agent, whose function is to understand the value of a film in many different markets. The sales agent will then set up stall at the film markets that take place throughout the year.
Then there is 'local' distribution, which involves the distributor acquiring the licence to release and exploit the film in a particular country. The distributor will usually pay the producer a minimum guarantee for the licence. This fee will vary depending on the status and perceived commercial potential of the film, and on the range of rights that the distributor chooses to exploit. A distributor will usually be offered theatrical rights, for showing the film in cinemas; video rights, for video and DVD exploitation; and TV rights, if the distributor is able to sell the film to a broadcaster.
In addition to paying a fee to secure the film, the licence will stipulate that the distributor will also pay royalties to the producer, taken from the profits that the film generates. A local distributor will conventionally share profits equally with the producer for the theatrical leg, pay back higher royalties for broadcast rights, and lower for video/DVD.
Once the licence has been agreed, it is then the distributor's job to launch the film. In the UK, feature films are released initially theatrically (in cinemas). A theatrical opening is seen as the most effective way to create interest in a new film. The big screen is still the optimum setting for a film for both audiences and the filmmakers.
Some months following the theatrical release, a film will be packaged and released on DVD and VHS video, then on various forms of pay television and eventually, two years after opening in cinemas, on free-to-air television. The value of the film built up by its theatrical release reaps dividends throughout its release cycle, influencing the audiences and commercial value it subsequently commands.At every stage, the successful distributor must have an in-depth knowledge of the marketplace - which cinemas, video outlets and broadcasters can best draw an audience for its films - and of the variable marketing costs involved in releasing a film in that territory. The trick is to weigh up the two factors, to invest as much as is needed in promoting the film to draw out the maximum returns.