Feature Distribution: Straight-to-video ain’t so bad

When Oscar-winning director Kevin Macdonald joined the production team behind Touching the Void, producer John Smithson threw caution to the wind and decided to turn the tv doc into a full-blown feature film. Smithson's initial reluctance to move to the big screen is understandable. Until Void
January 1, 2005

When Oscar-winning director Kevin Macdonald joined the production team behind Touching the Void, producer John Smithson threw caution to the wind and decided to turn the TV doc into a full-blown feature film. Smithson’s initial reluctance to move to the big screen is understandable. Until Void broke U.K. box office records by surpassing Bowling for Columbine‘s £1.7 million (US$3.3 million) benchmark, the track record for British theatrical docs was pretty dismal.

‘I thought it was a little like vanity publishing,’ says Smithson, London-based Darlow Smithson Productions’ executive chairman and creative director. ‘I think the most successful documentary had made between $300,000 and $400,000. At the same time I thought, ‘Why can’t there be a good and successful British documentary – a critically acclaimed and commercially successful one?”

Why indeed. At the end of 2004, Void had global box office earnings of approximately $15 million, with a few key territories such as Japan and Italy yet to play the film in theaters. After a 22-week run, its final U.K. tally was about $4.6 million; its total North American tally was $4.6 million over 17 weeks. In November, just as the $1.7-million production was about to leap into the profit margin, it was short listed for an Academy Award.

Let’s be clear: Void is the exception to the rule. For starters, the film began as a TV project, with Channel 4 in the U.K. and PBS in the U.S. providing initial funding. So, when New York’s IFC Films was considering distributing the title in America, the TV rights weren’t available. ‘When you’re in the theatrical distribution business and you hear that, it’s a red flag,’ says IFC Films president Jonathan Sehring. ‘We need to take advantage of every option we have.’

But, Sehring admired Macdonald’s work. He had also seen the numbers for similar adventure films, such as Dana Brown’s surf doc Step into Liquid. ‘You could see that that audience was increasing exponentially. That’s why we got involved with Void,’ he explains, adding that IFC bought the doc based on a five-minute show reel.

That Void is set to make a profit theatrically is also unusual. ‘If it had just done ordinary figures, I doubt we would have seen anything from Void,’ notes Smithson. ‘Because of the nature of the economics of the film business, it’s never going to generate a fabulous profit.’

Sehring confirms Smithson’s assessment is true for the distributor as well: ‘If you’re a distribution company of our size, or for any mini/major specialized film division, it’s not easy to break even on a theatrical release with a P&A campaign. That’s not the norm, it’s far and away the exception.’ He adds that print and advertising costs for a national release in 150 to 250 markets can range from $500,000 to several million dollars.

Until recently, most feature films were distributed in a similar manner: a distrib picked up the theatrical rights, as well as the TV, home video and other ancillary rights, usually for a period of 20 to 25 years if not in perpetuity. In exchange, the filmmaker received an advance, though not always, and a percentage of the backend. Sometimes the distrib would take about 35% of revenues; sometimes the arrangement was a 50/50 deal, costs off the top. The film was then released in theaters, then home video/dvd and then TV, while the filmmaker waited hopefully (and sometimes fruitlessly) for a check.

The theatrical release was never about making money – it can account for as low as 25% of any incoming revenue. Being in theaters simply built buzz and raised awareness, thereby improving the revenue potential of the tv and ancillary streams. As Sehring points out, that’s still true in today’s marketplace, however digital technology, the Internet and a desire to better capitalize on those substantial P&A expenses are inspiring new approaches to distributing feature films – especially special interest films like docs. Filmmakers are also getting savvy to the revenue potential of ancillary streams, particularly the lucrative dvd market, and striking deals that give them a better backend position as well as more control over how their film is handled. Today and in the future, filmmakers have more choices and better chances to stay involved with and earn an income from their feature doc.

Let’s get together

Ironically, one of the most successful feature docs of 2004 was a not-for-profit effort. In partnership with the political grassroots group, L.A.-based filmmaker Robert Greenwald released Outfoxed on DVD over the Internet. A $300,000 doc about the political agenda at Fox News, it sold more than 100,000 copies in three weeks at $9.95 a disc. Despite this level of exposure, the film was picked up for theatrical release and the DVD rights were bought by a commercial distributor.

Greenwald credits the film’s success to what he calls his ‘upstairs/ downstairs’ strategy. Since his goal was exposure, not profit, Greenwald partnered with organizations such as the Center for American Progress to organize screenings for influential opinion makers. ‘Downstairs,’ he teamed with MoveOn, which boasts 2.8 million members connected via the Internet. For its part, MoveOn organized ‘house parties,’ where members volunteered to host a small local screening of the film for their community.

The model had proven itself for Greenwald’s previous two films, Uncovered and Unprecedented. For the later, MoveOn sponsored about 2,600 house parties for its premiere in December, 2003. Within three weeks of its release, the film’s DVD sales had raised almost $1 million for MoveOn. Later, the theatrical rights were picked up by Cinema Libre, while New York’s Ryko Distribution acquired the commercial DVD rights. Sundance Channel in the U.S. subsequently aired each of Greenwald’s docs, save Outfoxed.

The market response surprised Greenwald. ‘Whereas I thought it would be over once we did it this way, in fact it was the opposite,’ he explains. ‘Commercial DVD, Netflix and theatrical all came along and said, ‘We think there’s more of an audience that you haven’t fully exploited. In fact, you’ve helped build this other audience because more people know about it.”

This is exactly Peter Broderick’s contention. One of the founders of IFC Entertainment’s now defunct Next Wave Films, Broderick is currently president of Paradigm in Santa Monica, U.S., a consulting firm for filmmakers and media companies. Having designed and negotiated countless distribution deals, he urges filmmakers to retain the non-exclusive rights to sell the DVD of their film off their own website, whether or not they make a commercial distribution deal. ‘If they give that up, it’s a serious mistake they will regret,’ he says.

While the chance to align a doc with a prestigious distributor has its perks and seems easier in the short term, Broderick asserts that the costs in the long run are usually too great. ‘If they make an overall deal, the middle person not only gets control of the movie, but in many cases they’re going to end up with 90% of the revenue,’ he notes.

‘There’s very few places where making an overall deal makes sense for filmmakers, based on the way things have evolved recently,’ he adds later. ‘Distributors don’t like to hear that, but if you look at the percentage of filmmakers that have made traditional deals and the percentage of them that are happy, I’d say two percent would be a big number.’

As an alternative, Broderick suggests filmmakers combine innovative distribution approaches with traditional deals. International TV rights, for example, are still handled well through conventional distribution channels. But for theatrical, Broderick favors service deals that allow producers to hang onto ancillary rights. In this model, a filmmaker can hire a distributor to handle the release, usually in exchange for an initial fee and a percentage of the results. Initial fees start at $40,000 to $50,000 for a national U.S. release, with percentage takes ranging from 10% to 25%. Since the bulk of a film’s earnings will come from dvd sales, these rights are especially ripe for better exploitation – such as direct dvd sales off a filmmaker’s website. The key, says Broderick, is negotiating a per unit purchase price from the manufacturer of no more than $5 (wholesale is typically $12). ‘It’s costing them about $1.25 to make that copy, so they’re making $3.75 on the sale to you,’ he adds. In turn, if filmmakers sell the dvd for $20, they’ll make $15 to $17 profit per unit rather than the typical $2 per unit. Additionally, interfacing with purchasers allows filmmakers to gather information about their audience while cultivating a relationship with it.

‘For some of the films I’ve worked with, the filmmakers learned such valuable information from the viewers sending them emails that it shaped the way they marketed the dvd or gave them ideas about what they wanted to do for their next project,’ says Broderick, who helped devise distribution strategies for Faster, The Same River Twice and Tibet: Cry of the Snow Lion. ‘A smart distributor will see the benefit of harnessing the energy and knowledge of the filmmaker in terms of the targeted outreach they’re going to do online to core audiences,’ he adds. Still dubious? Just look at Outfoxed.

At least considering such alternatives allows filmmakers to better assess potential distribution deals, says Broderick. ‘Then you can evaluate any offers in the framework of what you can do in your own plan,’ he explains. ‘If they’re offering a $25,000 advance and you know that in the worst case scenario you’re going to make $200,000 in direct sales, then you can say, ‘This doesn’t make sense, we’re going to have to structure the deal differently. Maybe we don’t have cross collateralization, or maybe we just give you the rights to retail video and we’ll sell the rights to tv somewhere else.”

Together we stand, divided we conquer

While carving up rights to the people best suited to handle them makes sense on paper, it’s difficult to pull off given the realities of the market. ‘If you’re buying the movie and you’re going to invest in releasing it, there’s no incentive for you to let someone carve up rights,’ says IFC’s Sehring. ‘Distributors get a bad name, but most aren’t making money, and they’re not seeing a return on their investment for years to come.’ He acknowledges, however, that there’s room for improvement. ‘A distributor can create a lot of overhead,’ he says. ‘Like government, the bigger distributors always nail you for something. Like taxes, there’s always one other recoupable element they can charge you for. We try to be transparent, but it’s tough.’

Sehring says service deals are better suited to smaller distribs, but he admits he would consider a version thereof if the film would benefit IFC’s brand image. In the case of Metallica: Some Kind of Monster, IFC accepted a pseudo service deal (the distrib participates in DVD and home video income, as well as theatrical) not only because it was a great film, but because it gave ifc a chance to observe the band’s unique marketing efforts. ‘Their fan outreach is incredible,’ he explains. ‘There’s a lot of web-based activities that you can apply to film marketing easily and seamlessly that are great at developing word of mouth.’

That, says Eamonn Bowles, president of New York boutique distrib Magnolia Pictures, is the true challenge of any theatrical distributor. ‘There’s thousands of films every year trying to get the public’s attention and a couple of dozen do. That’s the reality,’ he explains. ‘If you have something compelling, how you get it out to people is the least of your worries. It’s getting people to give a shit about your film that’s difficult. Once that’s done, the rest just falls into place.’

Still, how a film is released impacts how much money a filmmaker earns. As part of 2929 Entertainment – a vertically integrated media company in L.A. founded by Internet billionaires Mark Cuban and Todd Wagner that includes prodco HDNet Films, two HD TV stations and the Landmark Theater art house cinemas – Magnolia is poised to begin distributing films in a simultaneous manner. ‘There’s an excellent chance we’ll be collapsing windows and maybe premiering on HDNet with the theatrical, and having a shorter dvd window,’ says Bowles, adding that no specific titles are yet targeted for this type of release.

There’s little doubt this approach will become common in the near future as companies try to amortize P&A expenses. IFC, for example, is also moving in this direction. ‘The earlier you can take advantage of some of the major revenue streams from various platforms the better,’ says Sehring. ‘It’s not that far in the distant future for us.’

In the coming months, IFC will open its first independent cinema – the former Waverly Theater in New York, famous for endlessly screening The Rocky Picture Horror Show. Like 2929 Entertainment, that gives IFC outlets for all of the key film rights. ‘Our parent company is a cable operator. They’ve launched these satellites that beam high definition programs exclusively, so from the outset we’ve toyed with the idea of having films premiere there, but go out on a video-on-demand basis through set-top boxes – if not at the same time, within weeks, because it is so expensive to market and physically distribute these movies nationally,’ says Sehring.

For filmmakers interested in earning a living from their films – especially indie producers such as doc-makers – Sehring says investigating just such a distribution model makes sense. ‘By the time some of these documentaries that merit seeing get to a town, it’s six or nine months after they’ve been released theatrically. It’s out of sight, out of mind,’ he explains. ‘If there’s a movie I’m reading about right now and I can order it on an on-demand basis or get the DVD from Netflix, that to me is a much more sensible business model.’

Getting past the gatekeepers
Cineclix gives home theater new meaning

When Margo Langford was still navigating e-commerce laws for the music industry, she fortuitously wound up doing some legal work for a few filmmakers negotiating distribution agreements. This happenchance led to the founding of Cineclix in February, 2003 – a virtual film shop based in Vancouver, that makes dvd-quality downloads of indie flicks and docs available to own for the price of a rental. Langford says her inspiration was the realization that within traditional distribution models, filmmakers rarely make money. ‘I really had a low benchmark in terms of wondering how I could make them more money,’ says Langford.

What Amazon did for books, Langford is sure Cineclix can do for films. She intends to market the shop and make enough material available that people will drill through the catalog and find what piques their interest. The technology is here to do quick, high quality downloads – a hurdle of the past. And the one-time cost of uploading the films is reasonable, about US$20 to $30 per minute. Charging $5.99 per download, Langford says it takes about 600 hits to recoup that cost for a typical feature-length film. ‘That’s not a whole lot in a 700 million universe,’ she says, highlighting the advantages of an online customer base. Filmmakers are then entitled to 50% of their film’s profit.

The low price point is crucial to prevent piracy, an issue Langford witnessed the music industry fumble miserably. Naturally the films are encrypted, but Cineclix allows for file sharing between a maximum of three computers. (Burned DVDs of the film will only play on the three computers licensed by Cineclix.) Specific territories can also be blocked from downloading films if the rights are not available for that region. ‘We’d like to put up every film in the world if we had the money, which is very different from a typical distributor who is somehow deciding what it is people want to see,’ says Langford, who’s hitting the festival circuit in search of titles and approaching distributors about uploading their back catalogs. ‘We have the notion that art is never dated,’ she quips.

Cineclix went live in September, 2004 and art house cinemas as well as mobile companies are already enquiring about digital content delivery. ‘Creating a digital file is the way of the future,’ says Langford.

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