The Subdistributor Agreement and Producer’s Rights
Producers should be aware that distributor agreements with subdistributors may be upheld in court even if they violate the original agreement between the producer and distributor. In Recorded Picture Company v. Nelson Entertainment Inc., the California appellate court ruled that Recorded Picture Company (Recorded Picture), the producer of "The Last Emperor," could not compel the subdistributor, Nelson, Inc.(Nelson), to pay Recorded Picture the 70 percent of home video gross receipts as agreed by Recorded Picture and its distributor, Hemdale Film Corporation (Hemdale.)
Nelson and Hemdale agreed to allow Nelson to retain 50 percent of the home video proceeds rather than 30 percent as contemplated by the original distribution agreement between Recorded Picture and Hemdale. Recorded Picture did not trust Hemdale and required all subdistributors to pay Recorded Picture directly, but Hemdale did not instruct Nelson of this obligation. Hemdale went bankrupt and Recorded Picture sued Nelson to compel payment of 70 percent of video gross receipts not just the 50 percent that Nelson agreed to a pay Hemdale.
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