Film Accounting Glossary
Net participation
What is net participation?
Also called net points, or net profit participation.
Net participation is a backend deal paid only after the distributor has recovered its fee, its distribution expenses, the negative cost, interest, overhead, and any prior participations.
Because each of those deductions is defined by contract and several are calculated on each other, net profits are reached far less often than participants expect. This is the origin of the industry line that net profit points are worth roughly nothing without an audit.
Example
From $80M gross receipts: $20M distribution fee, $30M P&A, $8.7M negative cost, $2.6M interest, $4.8M overhead, $4M residuals, $6M senior participations. That is $76.1M of deductions against $80M, leaving $3.9M, and a 2.5% net participant receives $97,500.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Participation statements, calculated strictly per the contractual definition. The origin of the line that net points are worth little without an audit.
Common mistake
Valuing net points as if they were a share of revenue. They are a share of what survives a long list of contractual deductions, which is often nothing.
Related questions
- Why do net profit participations often pay nothing?
- Because the distribution fee, expenses, negative cost, interest, overhead, residuals, and senior participations are all deducted first, frequently absorbing the revenue.
- Can a participant audit a net profit statement?
- Usually yes, within a contractual window and at their own cost. Audit rights are time-limited, so statements have to be reviewed when they arrive.