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Industry Beat

by Anthony Kaufman

The Digital Lowdown

Cartel Land (Photo courtesy of The Orchard)

Is online distribution a boon to independent filmmakers or a boatload of false promises? Given that streaming/downloading is the primary way that many audiences are now consuming content, this may be the most pressing and important question for today’s business-savvy independent filmmakers. But it’s difficult to discern the answer.

For one reason, the digital distribution revolution is always evolving, and what was standard procedure three years ago is no longer the norm. A few years ago, everyone was talking about multiplatform day-and-date hits Margin Call, Arbitrage and Bachelorette — starry films that received huge grosses through simultaneous theatrical and digital releases.

But today, few specialized distributors are releasing their big films day-and-date, and more and more independent filmmakers are struggling to survive in the crowded universe of online platforms. That’s because of two factors.

One, as Dan Truong, vice president of release strategy and financial planning at The Orchard, states, is that “the first window is now more important than ever, because audiences [young and old] are more savvy, so if it’s available on digital, they’ll find it and it will eat into the theatrical sales.”

And two: The online market is glutted.

There are still plenty of success stories on digital (coupled with theatrical). The Orchard’s biggest digital releases from the past year include the New Zealand vampire  flick What We Do in the Shadows (total digital gross: $2.5 million) and the Oscar-nominated doc Cartel Land (total digital gross: $2 million). But both of those films also received hefty theatrical pushes (What We Do in the Shadows earned nearly $3.5 million in box-office sales). However, Truong admits there is no consistent relationship between theatrical and digital grosses.

Unsurprisingly, those indies with sex, horror or stars still perform well digitally. For example, Gravitas Ventures’ 2014 rom-com The Longest Week, with Jason Bateman and Olivia Wilde, and the company’s 2013 Rob Corddry horror comedy Hell Baby both earned seven figures across transactional and subscription VOD services, according to Gravitas’ CEO Nolan Gallagher.

But success stories don’t tell the whole story. What about the vast majority of independent films — those that play at a few marquee or major regional festivals, with one star (or none), and a catchy logline?

“A festival drama that isn’t an easy ‘genre sell’ will see digital grosses in the range of $100,000 to $200,000,” admits Truong.

Numbers provided by Gravitas Ventures bear this out. For a range of festival titles, including Already Tomorrow in Hong Kong (LAFF, 2015), Brightest Star (Austin, 2013) and Jamie Marks is Dead (Sundance, 2014), digital earnings — after small cash-infused awareness-boosting theatrical runs — amounted to multiple six-figures (approximately $200,000 to $400,000). The one exception to the theatrical-first rule was the 2014 rom-com Lust for Love, which pop-culture wunderkind Joss Whedon supported on Twitter and ended up earning a similar six figures going straight to iTunes.

Obviously, every film is different and distinct, but Sundance #ArtistServices director of creative distribution Chris Horton concurs with the six-figure goal. “If a filmmaker spends about $100,000 in P&A to finance a theatrical run, they’re probably going to be making that much from digital sources,” he says. “So if you’re a low-budget narrative film with not much if any cast or zero P&A, that film is going to struggle.”

On the Sundance #ArtistServices website, distributor Matt Grady of Factory 25 recently posted a highly specific cost-to-revenue breakdown for Charles Poekel’s low-budget Sundance drama Christmas, Again. Spending roughly $25,000 on a theatrical release to gain publicity, the film went on to gross $10,665 in transactional VOD. According the filmmaker, after iTunes took its standard 30 percent cut, net TVOD earnings amounted to $6,204, while the filmmaker also signed a $10,000 SVOD deal with Netflix.

Sundance #ArtistServices’ Joseph Beyer clarifies the miniscule numbers. “Success doesn’t have anything to do with revenue,” he says. “For many of these filmmakers, visibility is important, and if you can get onto a platform like Netflix, it’s hugely valuable.” (Given the numbers provided by Poekel and Sundance, a solid SVOD deal is also financially valuable — in their case, matching total transactional grosses.)

“It’s a lot easier to save money than to earn it,” adds Beyer. “That’s why we still believe now, more than ever, that because the profit margin is so small, you have to be disciplined in terms of production costs.”

And yet, there are hopeful signs. Documentaries, particularly those serving particular niches, have continued to do strong digital business. Small festival docs released by Gravitas — such as Fastball (Tribeca, 2015), about baseball; Unbranded (Hot Docs, 2015), about horse riding; and Being Evel (Sundance, 2015), about the famous stuntman — all earned mid- to high-six figures via digital.

“Documentaries definitely over-index on iTunes,” says Gravitas’ President Michael Murphy, who also sees potential in international digital markets, which currently represents about 10 percent of the company’s revenue. (Having seen 100 percent growth from 2014 to 2015 in digital numbers, Murphy is hopeful that foreign digital earnings will become a third of the company’s total revenue in the next two years.)

Outside of English-speaking territories, Murphy says Scandinavia, Germany and Benelux are all buying more U.S. indie product on digital platforms. In addition to global-minded docs, LGBT content also tends to travel well. “Filmmakers and rights-holders need to think globally,” he says.

It would also help if filmmakers and rights-holders knew the rules of the game. Currently, it is still extremely difficult to get a firm grasp of digital revenue projections for any given film. Companies such as IFC Films and FilmBuff, which previously have divulged digital earnings numbers to the press, declined to participate in this story. What’s the big secret?

Conversely, The Orchard’s Truong says it’s important that filmmakers understand the full picture of a film’s earnings. Unlike weekly box-office grosses, which are a terribly inaccurate and gross misrepresentation of a film’s success, he is making the company’s “Dashboard” tool public this summer, which puts ancillary revenue numbers into context.

“We’re really interested in being transparent,” he says. In that way, Truong believes filmmakers and distributors can work together to better understand those fundamental questions: “When does it make sense to throw dollars at a release or not?” he says. “What are realistic revenue expectations? What is the potential audience for your film? And how do you spend correctly to get there?”

Maybe someday soon we’ll have something close to the answers.

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