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in Filmmaking
on Aug 5, 2008

Producer Noah Harlan of 2.1 Films just came back from the Sundance Producer’s Lab and forwarded these comments about some of the topics discussed there. Like every producer, Harlan is trying to figure out what the new digital distribution landscape will look like for independents. I particularly responded here to his attempt to parse the revenue possibilities for the streaming and ad-supported models — a topic you’ve read about on this blog previously. For now, though, here’s Harlan.

I just got back from the Sundance Producer’s Conference and had a few thoughts that I wanted to share with some of you. There was, not surprisingly, a lot of time given towards online distribution, self distribution and new media revenue models given the presence of folks like Ted Sarandos (Netflix), Rick Allen (Snag Films), John Sloss (Cinetic Rights Management) and others. There were a lot of different views and ideas getting kicked around but I have the following thoughts and questions.

1) As people thrash about looking for a revenue model that works the notion of ad-paid content is rising. A stunning statistic came up at one point which no one followed up on and it has to do with Hulu’s ad-generated model. Hulu places 4-6 ads on your content for a feature film and you get paid 50/50 with them at $40-$60 CPM per ad that is viewed (ie: if the viewer doesn’t watch the whole movie you don’t get paid for all the ads, only those that are watched). That means, assuming everyone watches your film all the way through, and you are getting the most number of ads at the highest pay rate, the absolute maximum that 100,000 views of your film will pay you is only $18,000. If you take the case where 100,000 people watch your movie all the way through but it’s only 4 ads at $40 per ad then you’re making only $8,000. Let’s say you are making cheap independent features then you’re probably spending, when it’s all said & done, somewhere between $150,000 and $600,000 minimum to make your film. In an ad-based model you would need a minimum of at least 800,000 viewers and possibly as many as 3.3 million just to break even.

2) We refer to these systems (Snag, Hulu, youtube, etc…) as online distributors but in fact they are not. They are online exhibitors (portals as Rick Allen was saying). Some are destination sites like youtube, some send the content to you (Netflix’s box) and some allow you to move the movies around (Snag) but at the end of the day they are exhibitors. The consequence of that is that you, as the producer/filmmaker, are now the distributor. If you are the distributor then you are now responsible for residuals to SAG and the outcome of the negotiation with the AMPTP is going to mean some form of streaming and download residuals. SAG generally requires a residuals bond of some sort and now that responsibility is going to fall you the filmmaker. I imagine we will see SAG taking the cast shooting bond and just rolling it right over into the residuals bond and you will never see that cash released (or at least not for a long time). This means that the films that most need these self-distribution models (small movies) are going to have an additional cash burden placed on them at the time of production. This is an obstacle to the small filmmaker really making it in the new revenue marketplace. Add to the bond issue the fact that you will also be giving up a few percentage points of your revenue and you’re going to see the numbers from point 1 (above) come down even further.

So what does this mean for the independent filmmaker:

1) I think there is a real future out there but it’s going to be a couple years at least until the industry coalesces enough to provide reliable revenue which can be shown to investors. This means that between the lack of data in the new models, the low revenue from the streams, the paucity of viewers in each portal, and the global credit situation we are going to see a tough road in the near-to-mid-term for indie financing, particularly the private equity model.

2) Powerful players are going to be securing the major exhibition models with huge companies like AOL (Snag), Netflix, Apple, Amazon (Reframe) and GE (Hulu) staking hard to replicate claims on territory. There will be some room for small niche players (Jaman?) but generally we’ll all be on the big-boys’ formats and we’ll likely be on more than one of them at a time. This means that the real play for those looking to stake a claim in online distribution is in the marketing space. The people who learn best how to market on the web, drive eyeballs to films and get them to tune in, rent or buy are going to be the new distributors. The Weinsteins (of the 90’s) for the 2010’s will be people who are great at crawling the internet to find communities and putting video in front of them in the audience’s chosen format.

3) The mid-term mistake of Cinetic Rights Management and other similar ventures is that they are going to be eclipsed in value by the companies that bring the marketing muscle (read: dollars) and savvy to the table. Figuring out what platform you should be on is akin to figuring out what theater to program a film into. It is a good skill but one that is of marginal use if no one shows up at the theater. What really matters is the company that can get it to the right theater and then market it. This means that we will see something that will look a lot like what was before. Companies like Strand, New Yorker and Criterion will flourish if they can secure their libraries and make the leap to marketing digitally since they will no longer be saddled with prohibitive print costs and market-by-market advertising. If they don’t make the leap then they will be eclipsed by a new breed with a purely digital focus.

4) Michael Barker made the point (while sitting across from Mark Gill of course) that the sky is really not falling. Or if it is, it is no different from all the times it has fallen before. We are in for a few tough years but out the other side are more eyeballs and the possibility of making real revenue in a global marketplace. When the home video was introduced the wholesale price was high and the units that moved were low. When DVD came along the wholesale price plummeted but the units moved skyrocketed and it wound up being far more valuable than the video market distributors were clinging to. The same will happen here. We’ll have more viewers but we’ll get less for each ($.18 a piece for Hulu apparently right now). That’s good. The question is who is going to find those viewers for us.

Just my $.02.

Noah Harlan
2.1 Films
New York

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