Collection Account Management is a common tool to deal with revenues in the international audiovisual industry. Especially independently produced films, but increasingly also television series and animation projects based on international co-production, have a Collection Account set up to administer revenues.
Which are the benefits of a Collection Account, and can Collection Account Management function beyond the audiovisual industry, in other global sectors with similar characteristics?
Definition of Collection Account Management
Collection Account Management refers to the management of revenues on a project consisting of multiple production and financing sources, whereby such revenues are being received, allocated and disbursed by a neutral, independent, third party to the multiple beneficiaries of the project.
Multiple production and financing sources de facto imply that revenues are to be split amongst several beneficiaries, being amongst others the financiers and producers, to recoup loans and investments, compensations and eventually, profits.
The central element is a Collection Account, which is a bank account set up in the name of the third-party Collection Account Manager, or CAM. The only duty of the CAM is to manage the Collection Account on behalf of the beneficiaries, in accordance with the Collection Account Management Agreement, or CAMA.
The CAMA is a multiparty agreement, signed by all beneficiaries with a major financial interest in the project. The CAMA contains what in the audiovisual industry is called the Recoupment Schedule: this is the payment schedule showing the manner and order in which the revenues are to be allocated and disbursed.
The CAMA supersedes all underlying agreements between the signatory parties with respect to the allocation and disbursement of revenues, making it the exclusive legal instrument to deal with the revenues.
In the audiovisual industry, a CAMA is typically entered into by the main production company(ies), the international sales agent, the (main) external financiers (lenders and / investors), and sometimes talent, like writers, directors and actors, and guilds representing talent for so called residual payments. The sales agent directs all distributors worldwide, to pay the royalties (license fees, minimum guarantees and if applicable, overages) payable under the distribution agreements, to the Collection Account, from where the CAM allocates and disburse them to the beneficiaries in accordance with the Recoupment Schedule.
Benefits of Collection Account Management
The benefits of setting up a Collection Account, are multiple:
Protection of the revenues
With a Collection Account in place, none of the parties with a financial interest in the film controls the receipt, allocation and distribution of revenues. Control over the revenues is exclusively in the hands of the CAM. The CAM is not a party of interest; its only role is to act as a neutral, independent, trusted third party to administer the revenues. In compensation, the CAM receives a collection fee, and it may recoup incurred expenses, which are generally bank transfer costs and bank account maintenance fees. Key here is that the funds received in the Collection Account do not belong to the CAM and are therefore not part of the CAM’s assets. This is set out as such in the CAMA.
This way the revenues are in a save place and protected from financial risks such as improper application of revenues and bankruptcy of any of the parties of interest.
Avoidance of conflicts between the beneficiaries
The monies received by the CAM in the Collection Account are allocated and distributed in accordance with the Recoupment Schedule or payment schedule, as included in the CAMA. By having all the parties with a major financial interest signing off on one single legal instrument that supersedes all other agreements and individual deal terms – which in the audiovisual industry include the sales agency agreement, production agreements, finance agreements and talent agreements – with respect to the allocation and distribution of revenues, it reduces the risk of disagreement and conflict.
The CAM notifies all signatory parties to the CAMA of revenues received in the Collection Account. Furthermore, it issues periodic statements showing the receipt, allocation, and disbursements of the revenues. The statements also show the basic deal terms of the distribution or exploitation agreements, to the extent available, so that each signatory party can know which revenue sources are still active and ideally, how many revenues are still to be received. All this information is typically made available online by the CAM, with 24 / 7 access for the signatory parties. This creates transparency for the beneficiaries, which is essential for administering recoupment of loans, investments, fees, compensations and profit participations.
Outsourcing of the project’s administration
The CAM’s management of the revenues, and its reporting over the full period that the project generates revenues, creates a complete and fully documented administration of the project. The CAM’s reports can be used by the signatory parties for internal accounting and audit purposes. This can be of great assistance to companies that may not have the back office to properly administer this themselves and by outsourcing this task to the CAM, an administrative burden is taken away.
Collection Account Management in the Audiovisual Industry
In independent film, television and animation, there are two mean characteristics that make Collection Account Management necessary:
(1) There are multiple revenues sources; the distribution rights of the project are typically sold to several local distributors, that acquire the rights for a limited territory, for certain media, for a defined period.
(2) There are multiple beneficiaries: the revenues generated by international distribution, will need to be allocated and paid to several production companies, lenders, investors, talent, and guilds.
Does Collection Account Management work in other international sectors?
In my view, if a project has multiple revenue sources, and multiple beneficiaries who share the revenues, Collection Account Management can be a useful and perhaps even essential tool for revenue management. This is especially the case if there are several financiers involved in the project.
I can envision Collection Account Management in sectors like real estate, residential and commercial construction, renewable energy, pharmaceutical production, technology, and start-up financing.
To apply Collection Account Management to projects in any of these sectors, the CAM will need to be familiar with production, financing, distribution, and exploitation models. Although the CAM always acts as neutral, trusted third party and can never be in a position that it must interpret models or deals, it does need to understand the industry, the players and their roles in the industry (also for due diligence and KYC purposes), how financing works, and how revenues are generated and in general terms, how the customary recoupment rules look like. Further exploration of opportunities and assessment of industry models will be needed.
Collection Account Management is about management of revenues. It is common ground for independently produced and financed projects in the audiovisual industry. Benefits of having a Collection Account set up for a project are protection of revenues, avoidance of conflicts between beneficiaries, creating transparency, and outsourcing of project administration. Collection Account Management can be an essential tool for projects in other international sectors as well, especially if revenues come from multiple sources, and if revenues are to be allocated and paid to several beneficiaries.
David Zannoni is a consultant for Fintage House, a leading revenues and rights management provider in the audiovisual industry. David is specialized in Collection Account Management. He is also an educator and regular contributor for Stage 32, the world’s largest education platform for entertainment professionals. David runs his own consultancy firm Zannoni Media, which provides consultancy and representation services in the audiovisual industry.