7

Distribution

Nontheatrical and the Wild West

What do I mean by nontheatrical? All of the following have some relationship to theatrical releases. In these cases, the primary distribution model is nontheatrical. The big question remains, “Where is the money?”

Perhaps a better way to state it is, “Who gets the money?” I have to assume that you bought this book with the intention of writing a business plan to raise money from other people. Amazon Studios and Netflix are the most watched currently, but we also need to look at direct-to-smartphones, VOD (and all its version, such as TVOD, SVOD, etc.), iTunes, Hulu, and Xbox. These changes may look inviting for the independent filmmaker; the question of who gets the gold remains.

A Bit of History

In 2013, we had enough data to put all three―docs, animated films, and IMAX films―into their own chapter.

For the rest of this chapter, we are going to look at new and older new media distribution outlets. Once you have the facts, you can decide how to proceed.

Netflix and Amazon

Netflix and Amazon Studios are the currently referred to as the “disruptors” of the movie business. They bring a new model with their streaming service; however, their business model has yet to prove useful for filmmakers raising money from equity investors. For our purposes, it has nothing to do with filmmakers who are raising money from equity investors, unless one of those two companies is the investor.

Perhaps the biggest surprise for some attendees at CinemaCon 2016, the annual film trade show, film market, and food extravaganza for the National Association of Theater Owners (NATO), was the presence of Amazon and Netflix at the event. “We welcome all distributors who take theatrical releases seriously,” NATO Vice President Patrick Corcoran told The Hollywood Reporter.

Netflix does not take theatrical releases seriously. At Cannes 2015, Ted Sarandos, Chief Content Officer of Netflix and their usual public spokesman, said in terms of payment to filmmakers for films acquired, “All the films we do at Netflix will be profitable to the producer; there will be a premium to the budget…. There is no backend because there is no incremental revenue we are earning off that.” There is no way to know what incremental means, if anything more than a few percent over the budget. Even if we did know, it is unlikely to be a number that would appeal to investors. The company did release their Sundance acquisition, “Beasts of No Nation,” to the domestic box office (netting $90,777) to try and qualify for the Oscars. There has been no indication that future Netflix acquisitions would have any box office.

Speaking at the final luncheon for CinemaCon, Amazon Studios’ Head of Movie Marketing and Distribution Bob Berney, said, “We are developing an extensive slate to deliver quality films and become an important supplier and real partner to exhibitors.” Very happy after finding that five of their films would be at Cannes, Amazon Studios’ Vice President Roy Price said, “We are a filmmaker-driven studio; therefore, almost all our films will have traditional theatrical windows.” Several trades reported that the room erupted into cheers at that point. As nice as it is to have such experienced independents as Ted Hope and Bob Berney running a new theatrical distributor, their model appears to favor filmmakers who either pay to make a film with their own money or have Amazon finance the film. While Amazon has stated that many of their films will have a traditional 90-day box office release, they also then go to streaming. As the releases have just begun as this edition is going to print, we again do not have any idea what share, if any, filmmakers will make from such a release. Distributors to whom I have spoken could not speculate on what financial remuneration is planned beyond the budget. Even if we did know, it is unlikely that the total would appeal to equity investors.

For both companies, we have no database objective for the revenues and costs for individual films that have skipped the traditional box office distribution model and gone directly to streaming. Even if both companies were paying a percent of that money, we can’t do a forecast for a business plan. I doubt that this situation will change in the next four or five years.

The Other Media

YouTube

YouTube, which made its debut in 2005, was founded by three former PayPal employees. It allows users to upload and share videos. Google bought it in November 2006 for $1.65 billion. While much of their site is dedicated to shorter videos, in November 2008, YouTube reached an agreement with MGM, Lionsgate Entertainment, and CBS that will allow the companies to post full-length films and television shows on the site, accompanied by advertisements. This agreement was expanded to a “Movie Channel” that handles movies from studios and other distributors to provide feature films for download at a fee to the customer as they come into the rest of the home video market; however, it is not promoted on YouTube’s homepage. There also is the ability to upload your own content to YouTube. The content making high revenues, however, mostly involves people who entertain through talk, singing, acting, clothes buying, etc., not feature films.

Short Films

In the previous editions of this book, there was a chapter on the distribution of short films. YouTube and its Google parent are the main reason that chapter is no longer included. In 2009, David Russell of Big Film Shorts, which had been the major for-profit distributor of short films, closed his company. With the number of free videos being downloaded daily from the Internet, the marginal revenues that had existed for the films disappeared. Once a film could be seen for free on the Internet, theaters worldwide did not want to put it on their screens.

Second Screens

Television was the original “second screen.” Now second screen refers to electronic devices with even smaller screens—smartphones, iPads, game consoles. The big step forward that Google took in 2005 allowing download to cell phones, which I like to refer to as “short attention span theater,” seems like ancient history. There appears to be no limit to how many of these devices we will have. Still, most of the reported data is limited to what people download from television. Still, most of the data has to do with what people download from television. According to the MPAA’s Dodd, to be certain, teens and young adults are spending more and more time on their devices. According to a recent study, YouTube is a must-have service for 67 percent of consumers aged 13–24, while only 36 percent of those same consumers cite pay TV as a must-have service. What’s more, a majority of those consumers say they can live entirely without cable or satellite television. They find the content on TV less interesting, and the technology format less versatile.

Direct-to-DVD/Blu-Ray/Foreign

Sales of direct-to-DVD and Blu-ray films continue. Premier releasing into this market remains mainly a market for studios, releasing new versions so franchise films or a sequel to a theatrically released film with a genre market. It has been particularly lucrative for companies like The Walt Disney Company, which capitalizes on its family-film themes.

Independents have had less success in the direct-to business, and you have to try to be aware of the life expectancy of any company with which you might be negotiating.

Cinedigm Corp. has become a leader in distribution of nontheatrical films and videos, in addition to working with film companies with theatrical product. Cinedigm said in a statement that their acquisitions in the last three years have given them relationships with every major physical and digital distributor as well as, “the largest retail footprint of any independent studio distributor in the United States.” The company is well positioned to succeed in the quickly transforming entertainment distribution landscape. On the other hand, Alchemy (formerly Millennium Entertainment) became an independent distributor at the end of 2014 and was in “deep trouble” by February 2016, according to indiwire.com. In July 2015, the company Alchemy had three companies that gave it access to Wal-Mart and other national retailers as well as gaining more than 200 new suppliers for digital distribution including, among others, DreamWorks Animation’s non-theatrical and classics divisions; Ketchup; Microsoft (owners of the Halo franchise); Team Marketing; Vertical; Well Go USA; and XLrator. Indiwire.com suggested, “While other indie distributors fend off attacks from upstart new-platform competitors like Netflix and Amazon, the undoing of Alchemy may stem from an enemy considered all but toothless: The DVD business.”

Occasionally someone tells me that they have written a business plan for direct-to-DVD. When I ask what they used for data, the answer is, “You don’t want to know.” I advise readers not to go down that road. With the lower upfront expenses, you might be better off to become the distributor.

What Can You Tell Investors?

The short answer is, “Not much.” Clearly, things are changing. It is the timing that is the problem. If you are planning to distribute your own films directly through the Internet or any other new media technology, there currently is not enough money from Internet downloads for indie films. For forecasters, five years always seems like a long time. It can be in terms of new devices but not necessarily for changes in how a filmmaker can monetize them.

With the lack of data available about individual films, we are left with only anecdotal stories about how much money individuals have made selling their own films from their websites. When filmmakers appear on panels and say that they have made $3 to $5 million by selling their films only over the Internet, it sounds impressive. They might admit it took eight years if you push them. It is tempting to take their word for it, since you want to do the same thing.

If you have the resources yourself to make anything—short-, medium-, or feature-length and want to put it on the Internet, go ahead. If someone wants to put up money without any need for getting it back, make him or her your best friend; but you can’t honestly imply that they will make money.

Nevertheless, keep tracking what is happening. Put your own Internet browser to good use and follow all the companies and sites mentioned earlier. I will end with the same sentences that I wrote in 2013. All the above information is presented for your use. Proceed with caution! I still agree with Director Michael Apted and President of the Director’s Guild of America in 2009 when he said, “All the talk is the Internet and all the deals we did for the future. In a sense, that’s sort of fog. The real money and the real deals are in traditional media.”

Business Models

A distributor whom I know and respect very much told me in 2009 that the thing I had left out of the previous edition is that the digital wave was heading for the shore like a tsunami and that it is going to change the fundamentals of distribution. That still hasn’t happened. Many in the business are bullish about the future. We keep hearing that once the market is “fully developed,” it will be a boon for independent filmmakers. We have to ask, though, how long a time before the prophesied boon will be more than another after-market for films that have been released theatrically first.

Distributors specializing in “digital only” keep appearing in the market. Companies like GoDigital, Gravitas, and SnagFilms will take your film direct, while still contracting at times for theatrical releases. The major independent companies, like The Weinstein Company, IFC, and Magnolia, have separate labels devoted to digital. Unfortunately, there is no industry standard for how all this works. According to reports, digital distributors look for 20 to 30 percent of receipts, minus any fees or sub-distributor fees. That compares to the 50 percent that theatrical exhibitors keep. How the contract details read of any of those deals varies. The range of digital deal structures is wide, as no one has a firm idea of the best way to go. The biggest problem that you will have in investigating the thought of “direct-to” is recognizing hype when you read it. In addition, what relates to a large company that can afford to take a flyer sending films directly to online may not be useful for the average filmmaker. I look at it all as full employment for attorneys.

How is someone going to know that your film is available for download? You have to tell them. With social networks and email marketing, self-marketing keeps growing. Nevertheless, you still need some advertising push to alert people that your film is available. And how many of them are going to download? We don’t know that.