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Producer's Overview

How Does the FMSMF Work?

The Film Musicians Secondary Markets Fund (FMSMF) serves to collect, process and distribute secondary market residual payments and act as third party administrator on behalf of the producers for purposes of paying residuals.

If you've produced projects using the DGA, WGA and/or SAG-AFTRA agreements and are familiar with how "supplemental markets" work for those guilds, then understanding the AFM secondary markets is easier. Secondary Markets residuals generally follow the entertainment industry's standard pattern for supplemental markets residuals as found in the other union/guild contracts, except that the AFM percentages are less than other union/guilds and the FMSMF handles all the administrative work and details for distributing payments to musicians.

How Do Secondary Markets Residuals Work?

The Film Musicians Secondary Markets Fund receives residuals derived from "secondary market" distribution of motion pictures. Residuals paid to the FMSMF do not include any revenue from any primary markets:

  • No Domestic Box Office
  • No Foreign Box Office

Residuals payable to the FMSMF are triggered only if a picture generates revenue in one or more of the secondary markets:

Primary Markets Supplemental Markets
Theatrical Film DVD/Home Video, Pay TV, Free TV (including Basic Cable), New Media
TV Film or Series DVD/Home Video, Pay TV, In-Flight, New Media
Direct to Video Free TV (including Basic Cable)
Direct to Pay TV Free TV (including Basic Cable)
New Media DVD/Home Video, Pay TV, In-Flight, some New Media

Films initially produced for the home-video market (i.e., DVD, pay-TV) make no payment for DVD or pay TV sales.

The contribution formula is generally 1% of the Producer's Gross directly received from the applicable secondary market(s), minus certain allowed deductions described in the Guide to Understanding Secondary Markets Residuals.

For Example: A Producer with gross earnings from secondary markets after deductions, (i.e., Producer's Gross) of $1,000,000 would remit a residual payment to the FMSMF of $10,000.

  • All residual contributions are made before income taxes are paid on revenues, thus reducing producer's tax obligations.
  • As is routinely done with the DGA, WGA and SAG-AFTRA, a Producer can transfer and/or terminate residual obligations by executing a Buyer/Distributor Assumption Agreement.
If a film does not generate any revenue from secondary market distribution, then no payment is due to the FMSMF.

Generally speaking, secondary market exhibitions begin three months to two years after initial release. Residual payments are due at the FMSMF on or before 60 days after the end of a calendar quarter in which secondary market revenues are received by the Producer.

The following are some examples of secondary market residuals based on the film's secondary market activity. These are actual examples but, of course, are not intended to predict the success in secondary markets of other films. Residuals are not paid on box office receipts; they are derived from secondary market revenues only:

  • A 2011 major studio action film with worldwide box office of $695 million has contributed a cumulative total of $1.04 million as of 2014, because secondary market revenues to date have exceeded well over $104 million.
  • A 2009 Low Budget release, with box office of $216 million, plus millions more in DVD, TV and new media activity, has generated secondary markets residuals of $760,000 during the past five years representing secondary market revenues that exceeded $76 million.
  • A 2012 Low Budget release with worldwide box office of $51 million has generated residuals of $290,000 as of 2014, based on secondary market revenue in excess of $29 million during the past two years.

The above examples are not intended to suggest what a given film's success in box office or secondary markets will be. However, if you're trying to estimate what the residual payments to the FMSMF for an upcoming film might be, an easy rule of thumb is to remember that the residuals can range from less than 1/500th of "distributor's gross" from secondary markets (e.g., DVD, new media distribution), to not more than 1/100th of "distributor's gross" (e.g., use in free/pay TV and some new media) actually received from secondary markets distribution. Although the terms "gross revenues" or "gross receipts" are commonly used, please review the Guide to Understanding Secondary Markets Residuals for more information about the deductions a producer may take from "gross" before the residual calculation is applied.

If you have any questions about how secondary markets residuals for theatrical films, television programs or programs made for new media work, or if you have any other questions about how the FMSMF can be of assistance to you, our staff is available to be of service and assist you in planning for your upcoming production. Please don't hesitate to call us at 818.755.7777.

The Film Musicians Secondary Markets Fund (aka the "FMSMF") was created through collective bargaining negotiations between the motion picture producers, represented by the Alliance of Motion Picture and Television Producers ("AMPTP"), and the American Federation of Musicians of the United States and Canada ("AFM"). The FMSMF is a separate, 501(c)(6) not-for-profit organization and its activities are governed by the terms of the AFM Basic Theatrical Motion Picture Agreement and the AFM Basic Television Motion Picture Agreement. This document offers only a very general overview of the formula for paying residual contributions, and nothing in it supersedes the provisions of those Agreements.