Top Five Predictions for Films and Digital Distribution

The Independent Digital Distribution Lab –– IndiesLab for short –– is a joint initiative of ITVS and PBS designed to help filmmakers navigate the marketplace and to generate revenue streams while also having a social impact. Indie Labs Director Davin Hutchins shares his first of five predictions about the future of films and digital distribution. Be sure to visit Beyond the Box over the next several months to hear more predictions.

IndiesLab Director Davin Hutchins

IndiesLab Director Davin Hutchins

As independent filmmakers proceed with their projects for 2010, I thought I’d take a crack at making some predictions for the New Year.

PREDICTION 1: Creative Destruction Will Continue… And That’s a Good Thing

Video site Veoh Networks imploded this month. Not Chapter 11, mind you; it was a Chapter 7 liquidation. Veoh was an ad-supported, user-generated video site aspiring to be another YouTube. Even though it wasn’t a player in the indie film game, its demise is significant in that the company had burned through $70 million dollars of venture capital and was co-founded by former Disney chair Michael Eisner. This begs the question: if a guy like Michael Eisner with $70 million can’t make a video site work, what can one expect from smaller niche sites that have raised considerably less funding?

Traditionally, there have been two ways for film startups to make money off independent films –– charge a rental fee to view an entire film or run ads against films that are offered for free. The real challenge going forward is this: data suggests few consumers seem willing to pay a rental fee for an independent film when there is so much free content available on the Internet or TV. And with the glut of video on the Internet –– from professional films to semi-professional shorts to user-generated video –– ad rates are driven lower and lower by an endless supply of video (and much of it mediocre). Both major film platforms and startups will face these same challenges. In the past ten years, many indie film startups have imploded, were acquired, or radically changed their focus in order to survive: Atom Films (re-branded as Atom.com), iFilm (re-branded as Spike), Jaman, and GreenCine. All promised more or less the same thing –– filmmaker and film lover nirvana –– but significant dollars haven’t really materialized.

My hunch is that this creative destruction will continue… and that’s a good thing. It’s good because the firms that survive the next shakeout –– whether they are stalwarts like iTunes or upstarts like SnagFilms–– will do so by looking beyond the two obvious, traditional revenue streams and begin to adopt others. They will begin experimenting by convincing foundations or corporations to sponsor the delivery of indie films online. They will begin offering subscriptions for access to entire collections of curated films at affordable rates. They will begin the early release of films on digital platforms during festival runs when buzz is critical. They will begin offering personalized versions of their site so the films a person is interested in automatically rises to their customized homepage.

Many of the majors like iTunes, Amazon, and Hulu are already realizing the limited growth potential of relying on a single revenue stream and are actively trying to forge a second or third. Independent filmmakers gravitate toward any company bending over backwards to put independent films in front of the right eyeballs at prices audiences will accept. Once that happens, we will be getting somewhere.

In the next installment, I’ll take a look at the second of my five predictions for 2010: Curation Will Become As Important As Technology.

Davin Hutchins
Director, IndiesLab

Tags: , , , , , , ,

Thursday, February 18th, 2010 New Online, Producer Resources
  • costanoble

    Davin-

    I'm curious where the assertion that “few consumers seem willing to pay a rental fee for an independent film when there is so much free content available on the Internet or TV” comes from?

    The data I've seen (and I consult for a major digital content aggregator) suggests that this isn't the case at all. Although specific numbers are hard to come by (few digital platforms are willing to offer them up—including Snagfilms and any of the digital aggregators who deliver to iTunes) most will reveal that rights-holders can expect that 10%-12% of a films ancillary revenue will come from download-to-own and digital rental sales.

    It's worth noting that although iTunes isn't exactly nascent technology, the video store has only recently opened itself up to sell smaller films—so it's not yet a go-to place for audience to gravitate for independent films—and it's STILL accounting for a sizable share of ancillary revenues, even on lower-profile titles that don't benefit from the P&A of a theatrical campaign.

    It's also worth noting that there are now more ancillary platforms which audiences can enjoy their films than any other time in the history of cinema. Among others, this includes: Non-theatrical screenings, DVD, Blu-ray, Netflix, VOD, and digital rentals or download-to-own. And let's not forget piracy which, granted, doesn't figure into sales numbers—but P2P donation platforms are starting to crop up so that this may not be the case much longer.

    It's no news that DVD is sinking like a stone and Blu-ray, which hardly applies to indies, surely isn't filling the gap. But given all these options, and the continued growth of Netflix (which has fully embraced the acquisition of even the tiniest indies) what kind of revenue percentage could one reasonably expect from digital download or rent-to-own, even given an ideal payment structure? I don't think 10%-12% could be written off as insignificant given all of the above.

    To suggest that these numbers indicate audiences aren't willing to pay for rentals or download-to-own is preposterously premature. Granted, current digital marketplaces, platforms and aggregators may be looking for new ways to monetize–but any company worth it's salt looks to the future as a precautionary measure. Doing so doesn't necessarily indicate that there's a sea-change waiting to happen in the industry.

    Case in point: most car companies have been researching alternative fuel since…forever. Only now, after 100 years of world-wide automobile production and use, are they actually rolling out alternative fuel solutions.

    Ultimately I agree that the field will be “shaken out” and the cream of digital retailers and platforms will rise to the top—but I think that speaks to your next point (the importance of curation) far more than an inability of digital distributors to properly monetize their content. I hate to point them out again but Netflix has taken this challenge head on by holding high-profile contents for programmers to successfully improve their suggestion algorithm—which one might argue is a curation engine—in an effort to tackle a need that's far more pressing than increasing revenues on single titles….

    …but I'm sure you'll get to that in your next post.

  • http://www.shericandler.com/ Sheri Candler

    great stuff Davin and I agree with your point. About the last thing indies need is another platform, plenty of those already in existence and, apart from Netflix, most doing a poor job of letting the average consumer know they are there. While your other commenter points to Netflix as a good platform for all films needing digital distro, it is my understanding that Netflix does not revenue share. They buy copies of a film, digitize it and they keep the rest of the rental fees after. I could be wrong about this though, just what I have heard from indie filmmakers. Someone will correct me, I am sure.

    I like the idea of curated services that charge a monthly fee and give you access to all films in the collection, but Netflix is so far ahead of anyone even attempting this that the offering would have to be truly niche and the audience would be niche as well. Then, they would have to throw SIGNIFICANT marketing spend to bring audience in. That is where most fall down.

    The problem for indies is not the number of platforms available to distribute a film, it is the lack of significant marketing and advertising to make their titles rise above the others and make the desire to see their films so great that people are willing to pay for it. Why would you spend money on something you have never heard of when there are ways to see content that you equally have never heard of for free?

  • costanoble

    Sheri-

    I hardly think anything I wrote in my response could be construed as suggesting Netflix is “a good platform for all films needing digital distro.” Please try and be more wary about misrepresenting what other people say; it doesn't help anyone, least of all you.

    I will say, however, that you are right that Netflix doesn't revenue share. I'll also say that you're absolutely spot on that someone will step in to correct you on how Netflix operates their streaming business–and I'll be that someone.

    No company can just “digitize” a physical copy of media and start streaming it without owning the rights–at least not when that media is moving images and associated sound (film and video).

    If you had ever used the service, you'd know that only a limited number of DVD titles available to rent on Netflix are available for “watch instantly,” the name they give their proprietary streaming platform. With even a rudimentary knowledge of cross-platform distribution and the associated rights issues, you'd know that a company can't just digitally broadcast intellectual property without the specific rights to do so.

    Hope that clears things up.

  • http://yetanotherstrugglingwriter.blogspot.com Luci Temple

    Good discussion here :)

    For indie's the 'lack of significant marketing & advertising' is true of all platforms, including traditional tv, cinema, and dvds.

    The benefit of online distribution is that indie's can target their audience based purely on interests rather than be confined to geographic locations. Where it might be hard to get 1000 people in the same geographic area interested in your niche film to justify a cinema release, there is no such geographic obstacle on the world wide web. Online, people actively 'seek' and share content that interests them.

    Equally the imposed scheduled release mentality of cinema / dvd / tv doesn't match the various needs of the audience, or make sense considering technology of today. This system benefits blockbuster content, which sell their product en-mass, but not indie's who operate out of the long tail.

    Online and social media marketing certainly takes more time than if you have a big advertising budget to splash around, but even in the traditional system marketing is never primarily at the point of sale. It's not the cinema or video store that convinces me what movie to watch, my mind is made up prior to getting there. Indie filmmakers have a better chance of making that case to a global audience online than when locked into geographic locations. Further, indie audiences are happy to find content they like without caring whether it is a 'new release' or five years old, they don't need the same platform schedules.

    While most people right now are still using traditional media rather than renting/downloading online, the growth rates in take-up are huge, and in the long run it is the trend that will win out. E.g. three years ago the iPhone didn't exist, now it accounts for the majority of new smartphone purchases. Five years ago online social networking was rare, now everyone is on it. Online rental and download platforms are still pretty new, but as they evolve and better serve the audience – be it a niche audience or a mainstream one – there is no looking back.

  • http://yetanotherstrugglingwriter.blogspot.com Luci Temple

    Good discussion here :)

    For indie's the 'lack of significant marketing & advertising' is true of all platforms, including traditional tv, cinema, and dvds.

    The benefit of online distribution is that indie's can target their audience based purely on interests rather than be confined to geographic locations. Where it might be hard to get 1000 people in the same geographic area interested in your niche film to justify a cinema release, there is no such geographic obstacle on the world wide web. Online, people actively 'seek' and share content that interests them.

    Equally the imposed scheduled release mentality of cinema / dvd / tv doesn't match the various needs of the audience, or make sense considering technology of today. This system benefits blockbuster content, which sell their product en-mass, but not indie's who operate out of the long tail.

    Online and social media marketing certainly takes more time than if you have a big advertising budget to splash around, but even in the traditional system marketing is never primarily at the point of sale. It's not the cinema or video store that convinces me what movie to watch, my mind is made up prior to getting there. Indie filmmakers have a better chance of making that case to a global audience online than when locked into geographic locations. Further, indie audiences are happy to find content they like without caring whether it is a 'new release' or five years old, they don't need the same platform schedules.

    While most people right now are still using traditional media rather than renting/downloading online, the growth rates in take-up are huge, and in the long run it is the trend that will win out. E.g. three years ago the iPhone didn't exist, now it accounts for the majority of new smartphone purchases. Five years ago online social networking was rare, now everyone is on it. Online rental and download platforms are still pretty new, but as they evolve and better serve the audience – be it a niche audience or a mainstream one – there is no looking back.

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