More and more independent film producers are asking for 'Step Deals' due to budget and distribution constraints.
A 'Step Deal' is when a person initially agrees to a smaller fee for certain rights to use a song in a film – such as worldwide festival rights. A contract is then put in place whereby if the film yields a targeted gross income, the rights to use the song expand to cover all media and the licensing fee is tiered to increase with the films profit.
As each tier is met, the production company has to pay another amount to the rights holders of the song.
For example, an indie production company may initially pay $2000 (master and publishing) for the use of a song at international film festivals. But if the film picks up distribution and is released globally then additional payments will be due.
E.g film grosses over $10 million, the production company would have to pay another $2,000 (master and publishing) to the copyright holders and if the film reaches $20 million then another payment is available and so on….
A cap would be negotiated but ultimately it's a WIN – WIN as the producers get to include the song for a smaller fee and you get paid whether the film gets distribution or not.