Please forgive my absence from last month’s edition. Thankfully I was working round-the-clock with my distributor, several bookers and independent venues for the theatrical release of my own film “Pleased to Meet Me.” And now that some of that heavy lifting is done, we can get back to demystifying the world of film investment.
For most, the label “independent film” is a misunderstood blanket term used to define what is actually only a sliver of the film industry. As we covered in the first part of this series, studio films make up only around 6% of the films made annually in the U.S. The remaining 94% fall under
the label of independent film. Of that 94%, the general public may only be aware of less than 20% of those films. By “aware” I mean made known through the avenue of theatrical release. Today, many independent films are made for a targeted audience and without much thought given to seeing the inside of more than
just a few theaters. The goal for release is Video on Demand (VOD) and now to a lesser extent, cable and DVD.
VOD is a system that allows
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users to ingest desired content on demand via Internet protocol technology. You know the providers… Netflix, Hulu, Amazon Prime, iTunes, You Tube, Crackle, Direct TV, U-Verse, and so on. Increasingly this is the preferred method for viewers to consume their media. They get what they want, when they want and in many cases, without commercial interruption. Some of these providers base this side of their business on a pay-per-transaction model (iTunes, Direct TV) while others are subscription services (Netflix, Hulu). Others still utilize both subscription and pay per transaction models to distribute media.
As an investor you may be wondering if it’s vital for you to understand how these media companies distribute VOD. While this sort of information isn’t essential to have in your back pocket, it is helpful as you watch and wait for the production team you’re backing to navigate these waters. In fact, it’s never as simple as calling up Netflix and saying “We have a great movie and we want to sell it to you.” Unless your filmmaker has produced a Sundance “darling” the chances are extremely low that they will ever be able to make a move on one of the VOD outlets without the help of an aggregator.
An aggregator is essentially a company that has a direct relationship with a digital platform. In most cases an aggregator does not take a percentage stake in the film. They charge a flat fee plus expenses and serves as a conduit between the filmmakers and the VOD distributors.
Once the film reaches the marketplace via VOD the split is pretty standard, usually 70/30 with the high end going to the filmmakers. The VOD supplier takes their 30% cut, the aggregator then charges their fees and recoups their expenses, which vary from company to company and deal-to-deal. Now the distributor takes their cut from any sales. At the end of the day you may see 20-to-30 cents from every dollar, which means you’ll need to sell a lot of $9.99 downloads to see much of a return.
When it comes to acquiring a film, one of the few costs a VOD platform will incur is the encoding of the film to fit their streaming or download standard. This means there is no real stake for them with respect to the film’s ability to sell. A VOD deal will rarely include benchmarks for marketing or advertising, which
means it is primarily up to the distributor and
the filmmakers themselves to market the film to the public.
Another important note is that in this filmmaker’s humble opinion, regardless of their market penetration, subscription-based services like Netflix should be the last stop on the VOD hit list. With a subscription-based distributor, the filmmakers will receive a onetime fee. There’s no pay-per-view and thus no real hope for future residuals. It may sound great to have a film on Netflix but try telling that to your pocketbook. That said, providers like Netflix and Hulu are known to be quite generous with their payouts if it is a film they really want in their atalogue.
If you read the last article about theatrical release you are probably starting to see a pattern and it’s a pattern that has the producers and the investors at the back of the line. Still, it oesn’t mean you can’t make money. In fact, if the filmmakers know what they’re doing, they kept their production budget conservative, they’ve cast well and they navigate VOD waters carefully, the returns can be substantial, even if you are at the back of the line.
In the next article we’ll explore if there is money to be made in the shrinking cable and DVD marketplace.
Michael Fitzer is an Emmy™ Award winning producer and a partner in the production company 180 Degrees