Saturday, March 28, 2009

Filmmaking 103 - Distribution

dictionary.com has 14 definitions of "distribution". I like these two most:

8. the delivery or giving out of an item or items to the intended recipients...

10. the marketing, transporting, merchandising, and selling of any item.

These definitions define the process, but they don't define what lies at the core of a distribution arrangement.

Relationships. When you license your film to a film distributor, you, in turn, are licensing that distributor's relationships with parties that are essential to the distribution process.

When these parties work together, they make money together. That is their reason for being.

Their priority is to profit from the exploitation of your film.

Their priority is not making you a star or making you a millionaire. Why would it be?

During negotiations to get you to license your film to them, you WILL BE their top priority. If they believe that they can profit from distribution of your film, they will romance you, give you a reach-around, and permit you to touch them in intimate places until your signature is wet on the contract.

You never sell your film to a distributor. You "license" it to them. That means you give them permission to market it, book it into theaters, create materials to make people aware of it, recut it, and package it with other titles. Unless you are Spielberg, Lucas, or James Cameron, there is no clause that says you will control how your film (your baby) is sold.

With the classic film distribution model, which is steeped in elite, power-sharing relationships, the control is in the distributor's hands.

If you license your film to a distributor who has excellent relationships with exhibitors and publicity mechanisms, your film has a good chance of being seen. If, for example, your distributor is Universal and they have a great relationship with Pacific Theatres in California, your film may get priority stadiums in each complex and may be "held over" (even if it doesn't do blockbuster business) for two or three weeks beyond its debut week.

The film business is no different from any other business in this respect. It's all about relationships. One hand always washes the other. If it doesn't, that hand gets chopped off, and the relationship sours.

If you're an independent, your film is a product that counterbalances the relationship between distributor and exhibitor. It is the pretext for their continuing success as a partnership.

Distribution is not cheap. It's a bottomless pit of expenditure.

Say, for example, the distributor is generous with you. They license your $5 million indie film for 7 years in the US. They give you a $250K advance that is payable to you in three parts. You get $50K on signing of the contract. You get $100K when you deliver the materials required to distribute and market the film ("Delivery Items"), and the remaining $100K is payable to you on the day the film is released in theaters.

If they are going out with 200 prints, they will shell out approximately $2500 for each print; that equals $500K. Add another $50K to ship those prints to theaters. To promote your film and build awareness, they will need to cut trailers and create prints of those trailers. They will also produce physical posters and publicity kits that are given out to critics, journalists and theaters. Electronic press kits are created and distributed, too. There are additional costs for private critic screenings, as well as public critic screenings, and previews. Also, the distributor must buy space in newspapers and magazines for ads, and TV slots for trailers. This cost is at least $500K, although it could easily be north of $3 million. Any way you look at it, the cost is high and never-ending. Of course, your distributor is getting bulk discounts on items such as print production, but you'll be charged the card rate. That's just business.

If you are lucky, you will have a 60/40 split with the distributor. You get 60, they get 40. Sounds great, right? Well, keep in mind that you only get your 60% of the distributor's revenue after all distribution expenses have been deducted against your advance and they have taken their 40% from gross.

If returns to the distributor for one week are $2 million (that's $10K per screen; the exhibitor gets between 10-25% of gross ticket sales), 40% comes off that amount immediately. That's their distribution fee. As noted earlier, it's the fee you pay for their relationships. That leaves $1.2 million in the kitty. Now, subtract $550K for prints and shipping, $500K for advertising, and an additional $200K for miscellaneous expenses such as plane flights, hotel accommodation, merchandise creation, etc. That leaves you with -$50K. Now deduct your advance of $250K. That leaves you with a healthy -$300K.

Hopefully, you'll have a great second week, and see a spot of profit. Chances are you won't.

The risk is at both ends. If the film had averaged $2000 per screen return after exhibition took its slice, the distributor would be totally in the hole. In this case, the distributor has made a profit. You haven't. Not yet, anyway.

For the indie producer, the distributor is at the helm. They hold the revenue, they hold the rights to exploit your film, and they are instrumental in deciding how your film is perceived by the public.

For most indies, theatrical distribution is a loss leader. It rarely returns anything resembling profit to the producer (and his/her investor). What it does do, however (and this can't be underestimated) is create enormous awareness of your film, and this awareness can translate to sales and dollars in the ancillary markets such as DVD, VOD (Video on Demand), Cable, Free to Air, Aircraft and Ships, Military Bases, and Foreign.

Foreign is a whole blog in itself because it is worth more than the US, so I'm not going to go there now.

The point I'm trying to drive home is that traditional theatrical distribution is not geared towards the interests of the indie distributor. It is geared towards and was created by the big Hollywood studios (the distributors) so they had a pipeline for their own films.

Unfortunately, dedicated indie distributors are few and far between these days; one of the greatest, New Yorker Films, just went belly up.

How, then, does one make money on independently financed and distributed movies?

Thanks to technology, exciting new possibilities are emerging.

Ancillary markets such as DVD/Blu-Ray are the next stream of revenue after Theatrical. For most films produced, they are the first stream after festival exposure (which is not fiscally profitable) . Some DVD distributors will pay you an advance to license your film for home video. That advance will have to be made up with your share of revenue from sales before you start seeing a cent beyond it.

Costs deducted against your share of revenue include include licensing fees, distribution fees, telecine costs (transferring your film to a digital medium), DVD authoring, creation of artwork, production costs for interviews and commentaries, warehousing of the physical DVDs, and printing/DVD duplication costs. On average, for a $30 DVD, you get between $3-5 (if you're blessed).

Let's do the math. If the total cost of putting the DVD on a shelf is $100K, and you were paid a $10K advance, you are going to need to sell 36,666 units to break even on the $110K.

If you are making low budget genre films, this figure is pretty much unreachable (though there are exceptions). You may never see a cent beyond your advance.

Many independent DVD distributors are not even paying advances.

So why do producers/directors sign up with them?

Simple. They want their film out there. They're romanced by the perceived stardust of having their film on a shelf or on the site of an on-line seller.

In many ways, it's like giving your house away, which you would never do. You sweat to build it, furnish it, make it pretty. Instead of selling it, you agree to let somebody else sell it for you. For a fee. A big fee. You also agree to let them move into it for a very small fee, or no fee at all.

Does that sound insane? Yes.

Filmmakers enter into these dubious distribution relationships because they're desperate for recognition. The market is totally flooded with product. Cheaper technology has allowed every Tom, Dick, and Mary to make a movie. Most of these movies are terrible. They are traded like used cars at markets like AFM (American Film Market) and have become devlaued. Most will never see a dime back. The bad ones are mixed into the same chowder soup as the good ones. Distributors don't know the difference half the time. They license titles (or packages) based on an actor or director's track record. The film itself may be terrible, but some recognition factor is always better than an unknown quantity. That's how the thinking goes. It's all about limiting risk.

Many filmmakers make their movie with no clear vision of how it will be sold, or whether what they are spending is realistically recoupable. They base revenue projections on Cloud 9 case scenarios they're heard about such as Robert Rodriguez selling El Mariarchi to Columbia, a film he made (so the legend goes) for around $8K. Of course, anybody who's made a film knows that a feature cannot be made and finished (to studio quality levels) for anything close to $8K. That wouldn't pay for ten minutes of mixing. The studio spent several million more to get the film up to scratch. That's the reality. It's best to deal with that, despite the fact that many people in this business don't.

The internet is a potential blessing and a curse for filmmaking. Because it offers so many choices (many for free), it has fragmented the market. It has provided so many choices for consumers that no one choice carries the same pulling power as our limited entertainment choices used to. Fragmentation has also grossly reduced the licensing fees and advances media companies pay for content.

The greatest aspect of the net is its ability to democratize "content" (an umbrella name for the end product of creativity: film, music, video, comics, etc.) You can create something and get it seen by posting it. Traditional distribution has gatekeepers (the distributors), and they decide what gets seen and when. The internet doesn't. You can produce anything and put it on the net the next day. The challenge for you is to make people (your audience) aware of your movie's existence. The traditional distributors do this very well by utilizing their relationships (which you pay for). They place ads in newspapers and trailers on TV. They hire publicists to publicize your film and its commercial aspects . They charge like wounded bullshit, but they do deliver awareness.

Because the internet is not controlled by gatekeepers (yet!), it is a torrent of content (literally). Your film is part of that torrent. It's out there, sure, and people can access it, but it's just not special enough if it's one of a billion fish in a murky sea.

Your challenge is to make it stand out, highlight its unique qualities.

Because the internet began as a repository for free stuff, it created a strange expectation amongst early embracers that everything on it should be free. It is hard to get people to pay for anything on it, especially downloadable music and video. We expect to pay for hard copies of books and DVD's, but the "value" many of us attach to downloadable content is very little. This is why almost nobody is making money distributing their movies on the internet (yet!).

There are many reasons for this. Some are:

#1 You can get free movies easily and illegally, so why pay?

#2 It takes too long to download a movie at HD or DVD quality

#3 The process of downloading movies is too complex (there are too many formats and too many viewing obstacles).

All these are legitimate concerns.

Pornography jump-started the video revolution. It was the first genre to profit from the new technology that was VHS and Beta. Hollywood followed in its wake.

Pornography, once again, is leading the internet revolution. It was the first genre to find a way to profit from the internet by offering content people wanted in a form that was simple to access.

Music is starting to get there, too.

Some of the first pornographers to do it were Denmark's Color Climax and Spain's Private. These companies had been producing magazines and films for decades, since before hardcore pornography was legalized. They closed their magazine divisions down (or pulled back considerably) and cleverly re-branded and digitized content they'd already distributed and recouped costs on years ago. They suddenly made it available on-line to a whole new market.

They made and continue to make profits.

Hollywood has been much slower to get its head around the new medium. Concerns about privacy, copyright protection, and formats have bogged the big boys down. There is no agreement on a proprietary streaming method, and bandwidth/speed limitations have further handicapped the technology.

Blu-Ray and HD-DVD were introduced at a time when the on-line monster was rearing its Godzilla-like head. Driven by greed, the war between the two formats resulted in one victor and a very pissed off, confused consumer. Blu-Ray has not taken off with the force that DVD did because owners of hundreds, if not thousands, of DVD's are not keen to upgrade when they aren't sure if Blu-Ray will stick around. There is a definite perception that on-line distribution is the future, so this is holding Blu-Ray back.

As noted, on-line distribution is making few producers any real money. There is no way (in the near future) that you can make a $5 million film and see it profit via the internet alone. The technology is not at the point where downloading and viewing is simple enough for mass consumption.

When my parents (who are in their 70's) can turn on their TV, access an internet menu, and download an entire movie in 5 minutes -- with the push of one button -- we will be there.

Cable companies already offer something resembling this with their "On Demand" service. The speed of data racing down the cable is much faster than the speed of internet services. I think the two will merge. Then we'll have a legitimate new platform of distribution.

But who will control it?

This is where I see problems.

Huge technological growth requires huge investment. Investors want a return. The return that investors in technology want is control. If they hold the reigns, they control the revenue. If they control the revenue, they will take control of content.

Which will take us right back to the elite power-sharing relationships that exist in traditional distribution. It's in the interests of indie filmmakers to get away from that.

If the technology is being controlled, you will once again be dealing with a distributor and their relationships. They will extract a distribution fee and costs. If these gatekeepers don't like what you create, you won't be able to show it.

There goes your potential revenue.

Fortunately, because of fragmentation, the internet is a difficult beast to control, and there are other options.

If a filmmaker has to pay for the speed and bandwidth required to create a web portal for their content, a place where their audience can read about, watch, or download their movie for a fee, then that is probably still less than the distribution fees (and expenses) they are paying for now.

If a fan can dowloaded your movie for $7, and $2 of that goes to the technical expenses of the process, you're doing better than the current DVD template already, and the money is coming back directly to you.

Personally, as much as I like what companies like Google are doing in many areas, I detest recent moves such as Google agreeing to limit search engine links to pornography and "offensive content" because China is offended. What about the offense to freedom such a decision represents? Doesn't that trump communism?

When the big boys finally get the on-line thing right, they will offer their wares to the little guys (which is anybody but them). As tempting as this will be...

...keep in mind that they will only do that IF they think THEY can make money from YOUR content. It won't be because they love your work. It never is. There's no use getting mad about that. It's just reality. I'm a big believer in facing reality when looking for solutions.

For producers of low budget movies, the internet is becoming the only way to go, although variations of DVD will stick around for a while longer because of disparities in technology worldwide. The internet model gives you control of every aspect of your work. If you fail, it's because of you. If you succeed, it's because of you.

It's a liberating thing, isn't it, when you only have yourself to blame!

The future of indie film distribution is potentially bright because it is totally in your hands.

4 comments:

  1. I cannot lever 'China' and 'Freedom' into the same sentence. (actually, I just did; amazing what you can do if you use 'pure imagination'...)

    Interesting how China is offended by porn content, and yet slaughtering approximately one third of the population of Tibet is no problem for them. If you could market hypocrisy, you would become very wealthy very quickly indeed.

    And speaking of becoming wealthy (or not), I appreciate your blog, and note that you paint a sorry picture indeed. But I am heartened to note it is not all doom and gloom.

    In a way, you have shown us a number of possible ways of running by holding up a picture of a dinosaur.

    Although I wonder about the picture of the old flea bitten tranny whore- unless this is what a distributor looks like to you.

    I only have one thing to say in response to your message for the future, and that is, quite dichotomously, the future might not be in the Internet exclusively, but in the human factor; flesh and blood. Just as the internet has taught us how to write letters to each other like they did in the old days, so too might it, by default, facilitate actual physical communities, of the type we used to have in the old days.

    Like minds with similar interests who once upon a time found it difficult to connect, now with the technology, find it much easier.

    Stamp collectors and scatologists alike- or 'philatelic scatologists'- can meet and commune, for better or worse. I like to think any kind of community is better than no community at all in the majority of cases.

    This would no doubt invigorate the value we place on public performance, which is the saving grace of the music industry. Just as a new CD is dead weight without a touring committment, same with film , I would suggest. Which I guess is what a publicity tour is for a film maker or writer.

    I have no doubt you, Phantom, could make more money is public appearance than film making. I see a place and time where you will continue to make great films, but the real sustainable income might well be in active self publicity and appearances.

    Look to Rollins, who has a handle on it by doing it all.

    Does Noam Chomsky make money on books? Doubtful- no matter how well he sells. He makes money teaching, and appearing at lectures and seminars. And why not? He loves the language, and language loves him.

    And do you think Kevin Smith appears at university campuses because he loves students and cafeteria food? Also doubtful; the Student Union coffers are still full enough to get people like him and Mike Moore along to speak, especially in the US.

    I don't know for how long, but then, 'nobody knows anything'...

    If the Phantom was appearing at a Uni near me, I know I would pay to go see him.

    Well done my friend. Keep it up.

    Please.

    ReplyDelete
  2. With a strong marketing budget and some smart people, internet distribution is a viable alternative to the traditional distribution. It helps you retain a much higher profit margin and effectively reach your target demographic without the middle man. Sure, there are some issues in terms of liability. Now the filmmaker is responsible for "CYA" and ROI. But at the same time, it's a thrilling alternative to sometimes otherwise bad deals.

    ReplyDelete
  3. FS -- I'm encouraged by your confidence. Something deep inside me KNOWS the internet model will work eventually. As you say, an important part of the package is the marketing budget, which is ALWAYS necessary. It's sad when filmmakers don't budget for marketing. Holding onto more dollars is key.

    I am pitching a production company idea with an internet-based revenue model this week. It is for a certain type of low budget film that I'm confident is recoupable in this medium, although DVD is a bonus.

    Frankly, I only produce because I've never found a suitable, true "partner", but doing so has given me a very rounded perspective on the process. Even investors are interested in looking at new models because, for most of them, high end film investment is risky and terribly complicated.

    As mentioned in my post, several porno companies have got the model very right. One Japanese porn company has an excellent template that is working very well for them.

    Porn is a marginally different beast, of course, because production turnover is fast and budgets are low (unless you don't want them to be). This company keeps budgets at "card rate" and can forecast returns based on 5 years of stats on returns.

    Drama-, genre-based material costs more to produce, of course, but if bringing iron discipline to production is what it takes, so be it. My goal is always to continue making films and make money for investors. If you can do the latter, the former will follow.

    Personally, I think a lot of investors would be better off if they invested in "content" creation/ownership at the lower to middle end. The internet is the perfect partner for low budget distribution. For big budget, it is the new bull horn.

    ***

    mandingo -- I always have enormous problems with immoral, corrupt, murdering people who find porn offensive.

    As stated in previous posts, I know they fear it's power. Sex is the great driver of destiny (for better of worse).

    I wanted to paint a realistic picture of how distribution works. As stated, it works perfectly for the studios, and they need such an infrastructure because their necessary returns on investment are mammoth.

    I don't think the model works for indies now, especially because distribs are not paying anything close to what they used to in terms of advances and pre-sales.This wouldn't be a problem if budgets had dropped. They haven't. So you have budgets going in one direction and returns going in another.

    The flea-bitten tranny whore was illustrating my point about making your film stand out in a saturated market.

    I like your idea about the internet giving rise to new physical communities.

    It certainly gathers like-minded people together in a way never seen before.

    This period is a teething period for the net. Eventually, the teeth will appear.

    I always want to write and make films. Whether I'm making money at it or not. As long as the investor gets his chunk of change, I'm happy. I don't see myself as a self-publicist. I really do want to share "reality" with people. I always have. We live in a world so polluted by artifice and lies and myth. It's hard to know what's real. When I was first starting out in films, nobody but Richard Franklin would talk to me. All the other Aussie directors cultivated a kind of myth that filmmaking was something mysterious and elitist. I said "Fuck that!"

    The only Aussie filmmaker I felt a kinship to was Brian Trenchard Smith. I could never track him down. This was way before the net. But he made genre films (in Australia, of all places) that weren't embarrassed to be genre films. He was unpretentious and simply a guy who loved what he did and it showed.

    My love and passion for filmmaking has never lost its intensity. It's the business that can strip the paint off you if you let it. I work hard to not let it do that by doing things like writing this blog.

    You're only a failure when you've stopped trying!

    ReplyDelete
  4. Yeah, I was kidding about the tranny whore being the distributors. I note my humour doesn't work in text.

    Speaking of standing out, I think that is the key on the internet; doing something no one else does, and figuring out how to direct people there.

    And that requires self promotion.

    The first time I saw you was giving a presentation, and I was hypnotised. I have met some fascinating people in my time; I met and heard David Putnam- whom I admire immensely- around that period, and you crapped all over him.

    I said to myself 'I have to meet this guy'.

    I am not keen on the notion of self promotion. Many artists are loathe to do it (apart from actors) because they would rather let the work speak for itself.

    I wish more young starters could have the opportunity to meet you, and hear you. It might opens their minds, they would learn something about the world, and most importantly it would help to sustain their interest, ethusiasm and hope in difficult times.

    I would be sorry if you didn't come to embrace your worth as a 'self promoter' (for want of a better expression) in it's fullness; If you hadn't then, I wouldn't have met you. And it would be a tragedy if others were not able to share your wisdom and insight.

    This isn't massaging your ego; just stating plain fact.

    Richard Franklin RIP.

    Keep on keeping on...

    ReplyDelete