Lance Weiler tells you how to distribute your independent film online.

The promise of unlimited choice and shelf space due to an emerging on-demand universe of content has many in the industry struggling to figure out how new media revenue should be divided. This highly contentious issue is at the center of the current WGA strike. But while the WGA and the Hollywood studios duke it out over Internet residuals, many independent filmmakers are simply trying to figure out how to generate any kind of distribution income from the Net. And for these independent filmmakers, the biggest issue is how precisely to navigate today‘s fragmented world of digital distribution so that revenue even becomes a possibility. In 2008, filmmakers have many decisions to make in terms of outlets, partners and the best ways to drive audiences to their work.

The market is currently divided into two types of platforms: PCs (personal computers) and living room devices (set-top boxes, gateways and gaming consoles). The main delivery methods for both are downloads and streaming. Downloads can be DRM (digital rights management) protected files or DRM-free. Streaming solutions are often employed because they are difficult to copy.

Netflix‘s Watch Now is a streaming solution that the company is using to test new digital services. (Watch Now and services like Amazon‘s Unbox are currently not available for the Mac.) Joost is a P2P (peer to peer) streaming solution that is cross platform and ad supported. Companies like Apple (iTunes), Brightcove, GreenCine, CinemaNow, Jaman and Guba, just to name a few, also offer filmmakers sites that distribute films online.

When it comes to the living room, there are two options: traditional outlets like cable, satellite and telcos (telephone companies) offering VOD (video on demand) services via set-top boxes, or third-party devices also known as gateways (gaming consoles, digital video recorders, or DVRs, and media servers). These third-party devices receive their content via the Internet. Xbox, Vudu and AppleTV are all in this category.

Bypassing a Theatrical Release

Since the Internet market is fragmented, with different companies competing to bring the most eye-catching content to viewers, it can offer interesting opportunities for filmmakers bold enough to experiment. For instance, when it came time for director Ed Burns and producer Aaron Lubin to release their newest film, Purple Violets, they decided to bypass a traditional theatrical release and do an exclusive Internet release via iTunes.

“Instead of clinging to what we thought was an outdated way of releasing a film, we wanted to embrace new distribution models,” Lubin says. “Our partner Pam Murphy came up with the idea of a premiere release on iTunes. The point of purchase presentation on Apple and iTunes helped us stand out from the hundreds of films being released.”

While the headline-generating iTunes release provided awareness for Purple Violets, the reality is that download services like iTunes have limited marketplace penetration. So similar to the strategy behind a theatrical release, Lubin and Burns are hoping that a national promotion within Apple Stores and placement within iTunes will help drive DVD sales when the movie arrives in video stores in the first quarter of next year.

“It‘s still early in the world of downloads,” says Lubin. “Most people don‘t think about downloading movies, but five years from now it is going to be a very regular way that people consume movies.”

This fall Purple Violets climbed to number three on the most downloaded list behind Ratatouille and Pirates of the Caribbean, giving the film a wider reach than it would have gained from a limited theatrical release.

Reaching the Outlets

Purple Violets could not go directly to iTunes. The filmmakers needed to first go through a digital aggregator/distributor (in their case, New Video).

For those looking to break into online distribution through iTunes, living room boxes like Vudu and TiVo or traditional VOD providers such as cable, satellite and telcos, deals with aggregators are common. Aggregators assist with the vetting of titles similar to the way in which retail and rental outlets require producers to deal with a distributor. In fact in many cases an aggregator is a distributor or sales agent. Much of the industry has become risk adverse to dealing with single titles from producers. They prefer to work with distributors, aggregators, or sales agents who have a volume of titles that are properly cleared and vetted for release.

There are no standard deal terms when working with digital aggregators and distributors. Some require exclusivity while others do not, and splits can range from 80/20 to 30/70 in the producer‘s favor.

What can be confusing to filmmakers is that sometimes a subaggregator is needed to reach an aggregator before a title can land in a retail or rental outlet. In order to clarify the distinction, let‘s compare the digital distribution space to that of the home-entertainment industry. (See above chart.)

For example, Ioda is a digital aggregator/distributor well known in music circles. Recently Ioda started placing films in outlets like iTunes, Netflix, CinemaNow and Amazon Unbox. Idoa charges a 20 percent fee, does not retain any rights and often requires an exclusive window (i.e., to be the only company handling placement within digital outlets). By the time this goes to print, Ioda will be working with a number of subaggregators, and in certain cases, directly with filmmakers.

Alex Afterman is a subaggregator who also runs a DVD label called Heretic Films. He has successfully placed films with Akimbo, Vudu, Amazon Unbox and TVN in addition to certain cable, satellite and telco outlets. Afterman reports that the new digital landscape can be rocky and that outlets often change delivery requirements for titles. “Delivery requirements are pretty involved for most of these outlets and can be costly as well,” Afterman says. “As an individual it‘s hard to get accounting and payment from outlets, so it often helps to have a catalog in order to leverage payment.”

The value of a subaggregator or even a sales agent is that they can help to guide a filmmaker through the delivery process and in some cases offer an advance to help cover costs. Digital delivery is different per outlet and can require multiple transfers in various file formats. Some traditional outlets require closed captioning, and all outlets will ask for trailers, behind the scenes shorts, EPKs, high-res photos and artwork. One thing that is always constant is that a movie‘s rights and clearances need to be in place and documented. This is where a subaggregator can assist by carrying your movie under their E&O insurance policy. (Tip to filmmakers: make sure to push to be covered by an aggegator‘s Errors and Omissions [E&O] insurance policy and to also place a clause in the contract that allows you to exploit certain digital rights in the event that the aggregator cannot.)

Audience Direct

In October Radiohead‘s newest release, In Rainbows, sent shockwaves through the music industry. Not only did Radiohead sell direct to its own audience, but it allowed them to set their own price. The results of the experiment are not known as official numbers have not been released by the band. Comscore attempted to decipher the results, but the band disputes their findings.

Comscore claims that 39% of those who purchased In Rainbows paid an average of $6 while the other 62% paid nothing (actually .94 when figuring transactional charges.) According to the report 17% paid less than $4, 6% paid between $4-8, 12% paid between $8-$12 and 4% paid more. Also in the first 29 days the site had 1.2 million visitors which Comscore estimates were people mostly downloading the album.

Sure, Radiohead is an established band with a large following, but the concept of selling multiple versions directly to one‘s audience offers independent filmmakers some interesting possibilities of their own.

For instance, Radiohead sold a lower-quality mp3 version of the album under the “set your own price model” but also offered a collector‘s box set at the same time for a fixed price of approximately $80. What is most interesting about the experiment is that Radiohead is now gearing up to release a CD version in Europe and the U.S. In addition they have since closed their digital store and are in talks with iTunes.

Taking Matters into Your Own Hands

When it came time for Hunter Weeks to sell his doc 10 MPH, he and co-director Josh Caldwell took a DIY approach with the goal of reaching as many people as possible. In addition to DVDs, the team decided to offer digital downloads of the film in the iTunes .m4v format directly from their site. In effect, they created the same exact model that Radiohead employed for their release.

“Since Josh and I both have a background in Web marketing, it seemed very natural to think digitally about our release,” says Weeks. “We knew a download was necessary, but we couldn‘t crack Apple with getting it on iTunes. So we made our own iTunes compatible file and sold it on our own Website.”

When it came time to prep 10 MPH for download, Final Cut Pro Studio 2‘s compressor was used to make the iPod-compatible .m4v file. After testing a few different settings, the producers took their 92-minute 16:9 DV source material and compressed it down to a 640 x 360 780 MB file. The file can play within a Quicktime player, iTunes or on an iPod device.

After encoding the film to the .m4v format, they hosted it on their own server. For the transactional part they turned to e-junkie.com, which enables buyers to purchase via Paypal or by credit card. To date, 10 MPH has sold more than 1,000 digital downloads at an average of $6.

When asked about the film‘s digital performance Weeks responds, “We‘re not rich by any means, but we‘re getting a lot of attention and we‘ve sold over 1,000 downloads of the film. Because of our pick-your-own-price model (launched five months after release), we‘ve sold downloads for as much as $100 and as little as 10 cents. On average, we‘ve probably made about $6 a download. In addition to the cash, this has helped DVD sales, opened up opportunities and given us instant reach all over the world.”

Giving It Away for Free

The team behind the feature Four Eyed Monsters turned to bside.com to enhance their online store, which features DVDs, T-shirts, posters and a variety of digital-download formats of the film. The backend fulfillment (order processing and shipping) was handled by bside.com.

Arin Crumley, Susan Buice and collaborator Brian Chirls have been very effective in marketing, promoting and distributing their own work. What has worked well for the team is giving away free digital downloads with a purchase of a DVD and providing a low-res free version of the movie on YouTube and MySpace where they were able to receive a sponsorship from spout.com.

Says Crumley, “The day the film hit YouTube new offers for TV and DVD distribution came onto the table that doubled the distribution fees we‘d be getting. So there are a lot of possibilities and directions we can go. Probably a lot more then if we had just taken the $15,000 offer [from a conventional distributor] for all the rights to our film and gone with a release that was going to basically bury the DVD and make it illegal for anyone to have a copy on the Internet.”

The free versions of the film assisted with sales of not only the movie but also merchandise. To date Four Eyed Monsters has sold 1,479 DVDs, 85 iPod downloads, 146 DVD downloads and the collaboration with spout.com has yielded more than $50,000 in sponsorship monies.

When asked about consumer uptake Crumley explains, “What we are seeing is that digital outlets are very much like physical retail outlets — you sell more in places with foot traffic. So for that reason, it‘s most advantageous to get your film into every digital outlet that exists.”

The Issue of Discovery

No matter what distribution path is chosen: selling off one‘s own site, working with a distributor or going direct with an outlet, finding an audience online is the biggest challenge an independent filmmaker considering digital distribution will face.

While digital downloads offer promise for the independent filmmaker, the market is still small and fragmented. Digital rights can be a confusing labyrinth. There are issues of DRM (digital rights management), who has what window of release when, some outlets wanting exclusivity while others do not, numerous formats, and there are currently no clear simple paths for filmmakers or consumers to follow. But as with all emerging markets, there is room for experimentation and the best part is that there are no rules.

The Digital Divide: Consumer

One of the largest factors holding back the popularization of digital feature film downloading is what is known as the “last six feet,” a phrase given to the complexity of getting content into the living room without being a burden to the consumer. But current online outlets can be just as burdensome due to additional software and codec downloads, not to mention DRM that locks content to a certain device.

In an effort to better understand the digital landscape I decided to give a number of outlets a try.

VUDU:
First up is the Vudu Box, a living room device that is, essentially, a virtual video store in a box. The small shiny black box arrived at my house around 4:00 p.m., and soon after I was navigating through Vudu‘s catalog of more than 5,000 movies. The Vudu box is one of many devices targeting the living room in an attempt to simplify the delivery of digital content.

After scrolling through a number of titles my impulse purchase was Ridley Scott‘s 1982 classic, Blade Runner. I rented the title for $2.99 and was given 24 hours to watch it.

TV Viewing: The performance of the box was impressive. The movie started right away and played flawlessly. The quality of the image and sound was the best of the four purchases I made during the researching of this article. The image was the same as a standard definition DVD — nice blacks, good color saturation and a nice crisp image. The Vudu box is engineered with P2P technology, so in theory as the number of boxes grow the download speeds for the whole network increase. Overall, Vudu is an interesting device. However a $399 retail price and the nagging question of whether consumers are ready for yet another box in their living rooms are the largest obstacles that Vudu will face going forward.

Filmmaker Value: Vudu currently works with aggregators but intends to work directly with filmmakers in the near future.

ITUNES:
Finding Purple Violets on iTunes was easy. Since I already have an account, the purchase was a simple three-click process. The 1.15 GB .m4v file took about a half hour to download.

Laptop Viewing: The image looked clean and there was nice color saturation. Full-screen viewing resulted in a soft blur around certain edges.

Filmmaker Value: Currently, iTunes holds little value for independent filmmakers unless they work with an aggregator. Apple‘s focus has been to build a single deal that fits all content providers. Purple Violets demonstrates an interesting model, however, especially due to Apple‘s promotional support and the “exclusive release” buzz. Nevertheless it remains to be seen if the Purple Violets release is just “first mover advantage” or something with more staying power.

FILMMAKER DIRECT:
A very simple process that was seamlessly integrated into 10 MPH‘s site. All told it was a four-click-to-watch experience. The 780MB file took close to 40 minutes to download. The image quality of the file was decent considering that the file is 640 x 360. It‘s clear that cross-usage was the goal as the file can play via iTunes, AppleTV or an iPod.

Laptop Viewing: There was a bit of artifacting around the edges and in full-screen there is an overall soft blur.

iPod Viewing: The image looked clean and crisp on my iPod.

Filmmaker Value: Selling direct offers many advantages: the ability to control the sale, retain the rights and track performance. Not to mention, you do not need to rely on third-party accounting.

The foureyedmonsters.com/store is easy to navigate and provides a wide selection of FEM merchandise: a $15 DVD, $18 T-shirt, $8 DVD-quality digital download, $3 iPod quality download, $20 poster and a $44 dollar all-merch bundle.

I opt for the $8 864 x 480, 1.54 Gig .m4v file. It took a little more than an hour to download. The file opened via iTunes, and I was up and running quickly.

Laptop Viewing: The image quality was good and the color saturation vivid in parts. In full screen the image fared a bit better than the other .m4v files that I downloaded.

Filmmaker Value: Having choice for the consumer is important but finding a way to easily handle the backend is what will prevent a filmmaker from going nuts. Having to process, ship and deal with returns can be a hassle, so finding a backend partner can be a time-saving proposition. In addition, experimenting with ways to bundle your content or give something away for free can help drive sales.

DIY Solution Providers

The following companies offer a wide variety of services to assist filmmakers with reaching audiences and simplifying the process of selling their films.

IndieFlix: IndieFlix is a one-stop shop for distribution with a focus on community and discovery. They provide multiple revenue streams via PPV, sponsored streaming, download and DVD delivery direct from IndieFlix.com, and via third-party delivery partners all at no cost to the filmmaker. IndieFlix services are nonexclusive. Filmmakers retain their rights and participate in the profits from all revenue streams.

B-side: B-Side is a technology company that provides acquisition, marketing and distribution services to filmmakers, festivals and distributors. Their mission is to find great films at festivals that fall through the cracks of the traditional distribution system and connect them with distribution opportunities.

Breakthrough Distribution: Helps content creators maximize their distribution possibilities via online, retail, theatrical, broadcast and other channels. Its independent-producer platform provides rights holders with services, tools and strategic frameworks to leverage new business models, technologies and marketing approaches on a global basis.

Without a Box: Without a Box has helped to streamline the festival-submission process. Now they are doing the same for distribution with a variety of audience building and distribution tools that put the power in the hands of the filmmakers.

E-Junkie: E-junkie provides you a shopping cart and “buy now” buttons to let you sell downloads and tangible goods on your Web site, eBay, MySpace, Google Base, craigslist and other Web sites using PayPal, PayPal Pro, Google Checkout, Authorize.Net, 2CheckOut, ClickBank and TrialPay.

Echospin: Echospin is a media technology and e-commerce company. Its unique solutions empower record labels, artists and other content providers to easily sell and promote content directly to fans.

Neoflix: NeoFlix is an integrated e-commerce, fulfillment and customer-support platform created specifically for self-distributing independent films.

Indiepix: Indiepix is an online distributor that delivers a curated collection of independent films from around the world. Avenues for distribution include IndiePix Films‘ Download-to-Own technology as well as DVD delivery by mail.

CreateSpace: CreateSpace provides services for on-demand publishing. Through their service, you can sell DVDs, CDs and books for a fraction of the cost of traditional manufacturing while maintaining more control over your materials.

Cruxy: Cruxy provides marketing, monetization and performance tools for digital creators, whether filmmakers, musicians or artists of any kind. Cruxy‘s tools give artists the power to share their work on Cruxy or across the Web. They also give creators the ability to sell their work as digital downloads.