Friday, April 5, 2013

Hollywood, the indies, and digital distribution

The last post looked at a number of the new intermediaries, or middlemen, that have emerged in the music industry as power shifts from -- and note, I'm not saying entirely away from -- but from a handful of big monolithic players and a small number outliers to fewer monoliths and scores of small-to-medium players. I believe there will always be a few big players, and that there will always be a need for big players as they understand and serve the mass market well, so let's put aside the whole 'we don't need the majors any more' discussion for now.

What the major labels are to the music industry the studio system is to the film industry. In the U.S. the film industry is about a $100 billion industry (see full spreadsheet here, courtesy of the hard-working folks at, and as such is considered one of the primary drivers of the country's economy.  When it comes to productions like Titantic, Shrek, and the Batman franchise, nobody does it better than Hollywood. Much has been written on the topic of the omnipotence of Hollywood already, so this post will instead shift its gaze toward how the independent end of film is faring in these digital times.

Disclosure: This is not an area of great personal expertise, but I am interested in looking at the supply/demand/democratizing issues seen in the context of the music industry, as they play out in the real of filmmaking. So I did some research, I canvassed some people that know the terrain better than I do, and the result is this post.  If I am woefully misinformed or just flat out wrong please leave your comments below and I'll revise the post accordingly.

For now you can read on for a consideration of questions such as these:

Are things now better or worse for independent filmmakers?
Does the fragmentation of audiences enabled by digital media and networks level the playing field for the indies in any meaningful way?
Or, in a business that tends to be about big budgets and bigger bets, are the indies no better off in these self-networked times than they were in the days when studios and cineplexes were crucial to any kind of success?

We'll start at the makers' end of things: Supply. There was a time when specialized skills, equipment, and large amounts of capital were required to make a movie. Filmmaking was one of those things that only the most ambitious, gifted, or privileged could even contemplate. Then along came digital. The advent of handycams and teach-yourself, often free, editing software meant that motion pictures cameras went from being something unusual to something more or less mundane. And so a glut was created at the on ramp that is production, where previously the barriers to entry had been insurmountably high. With a camera that cost maybe five hundred dollars you too could make moving pictures. Which is how we got things like America's Funniest Home Videos. But with a budget in the tens of thousands you could make actual films, things that could potentially make an impact (as Kevin Smith did with Clerks, as did the producers of The Blair Witch Project, SuperSize Me, etc.)  Compare these figures with averages of around $80 million for a Hollywood movie, plus marketing budgets of about $35 million.  And a hit rate of less than 1 in 10, with as many as 70% of major theatrical releases losing money, the next 10-20% maybe breaking even, and less than 10% turning a profit, according to Entertainment Industry Economics.

The freeing up of the field to anyone with an idea and the desire to execute it led to a flowering of independent film and video production. Filmmaking had been put into the hands of the people, at last. On the audience side new options flourished too. Cheap DVD rental and purchase, numerous legal streaming sites such as Netflix, peer-to-peer file sharing on pirate sites like Bit Torrent, full length uploads of films to sites such as YouTube, by both copyright holders and those who don't hold the copyright. Watching movies went from being an expensive, location-specific, heavily scheduled activity to an inexpensive, on-demand, anywhere, any time activity. The Economist reports that: "In 2011 American cinemas sold 1.28 billion tickets, the smallest number since 1995. [In 2012] ticket sales rose back to 1.36 billion and box office revenues to a record $10.8 billion, thanks to blockbusters like The Avengers. But film-going in America is not a growth business, especially now that people have so many media to distract them at home. The share of Americans who attend a cinema at least once a month declined from 30% in 2000 to 10% in 2011."

But what I want to know is if the shift away from the pay $12 for the ticket, $10 for the parking, and $5 for the popcorn movie experience might have a positive rebound effect for independent filmmakers. Because they can make their wares for less, and market them for less -- using digital and social channels -- and they can even bypass theatrical releases, in the process creating a new secondary, or possibly tertiary tier in the market. And for my own personal edification I wanted to find out if movies I loved, like Shut Up Little Man, (described as a documentary based on audio verite recordings of two raging alcoholics made by their Gen X neighbours) could now get made, be put out there, and find their audience through the magic of the amped-up word of mouth that is today's Internet and the availability of digital, on-demand entertainment.

I wrote to the team behind the movie and.... waited a few days. I didn't hear back. So I moved on with my investigation.

I next looked into what's involved in getting one's film onto something like Netflix or iTunes, through which anyone with an Internet connection or a $7.99/month subscription can access your 90 minutes of passion-fuelled artistry. Can anyone get onto, say, Netflix? Who, if anyone, is the gatekeeper in the system now that filmmaking is something more widely dispersed in the general population? What I found is that just as there are middlemen involved in getting your music onto iTunes there are also middlemen involved in getting your film onto sites like Netflix. The good news is there are far less hurdles and middlemen than before, when the last person to get paid, and the person who invariably got the smallest share of whatever the film made (if, in fact, it managed to turn a profit), was the filmmaker him or herself. The other piece of good news is that any time there are missing or not fully formed links in the chain, opportunity exists for someone to come up with a better solution, and in the digital space, it tends to happen with both frequency and speed.

As with my recent post on some of the new middlemen that comprise a music industry that is slowly reshaping, I am in no way endorsing any of the services mentioned in this post, just reporting on them, in an effort to map out the ways in which the film industry is reconfiguring to accommodate the influx of new, smaller-scale productions. There are numerous blog posts that address the question, some with the intention of selling you services, others that seem to be for informational purposes, and this one, that lays out what it takes to get your film onto Netflix or iTunes seems as good as any of them (just feel free to ignore the online filmmaking course they try to sell you at the end of the post).

The basics are:

You still need a distributor or aggregator, and here's why, according to the link above: "Distributors pick films that meet their creative and technical standards and films that they believe an audience will want to see...Retail platforms benefit from dealing with companies who have done their filtering for them and who have large catalogues of films and documentaries to choose from. This helps ensure places like iTunes and Netflix don’t become digital dumping grounds." Fair enough, as what qualifies as a film is pretty open to interpretation these digital days, and not everyone's home movie or high school project can be accommodated. (For that, and more, there's YouTube, the subject of upcoming posts, so fret not).

But back to indie film, and getting digital distribution.

So -- you need some sort of middleman, in the form of a distributor or aggregator, to act as at least a basic filter, not just for audiences but also for your 'retailer'. Also, if iTunes and Netflix were to deal directly with individual filmmakers with single projects it could quite quickly turn into an accounting and administrative nightmare. Therefore platforms prefer to deal with middlemen that represent a catalogue of productions and they can kill both the administrative and quality control bird with one stone. You do have the option of going straight to DVD, but again, in that scenario you will still fare better by involving a distributor. When the supply side is as heavy as it is now intermediaries can and often do help. Bear in mind that if you go straight to DVD or Netflix (vs. pursuing a theatrical release)  your project's value and earning power will be reduced.

iTunes recommends some of their more popular distributor/aggregators here, and others include Distribber. Incidentally, as of last year, Tunecore is out of film and video distribution, choosing to focus instead on music. If we use Distribber as an example the upfront costs are $1295 (SD) and $1595 (HD) and the chart found on the middle of this page breaks out the comparisons of this model vs. various revenue sharing arrangements.

Overall there are fewer middle men and, hopefully, less of the inscrutable, opaque accounting aka Hollywood accounting practices that specialize in taking tens or sometimes hundreds of millions of revenues and still managing to show a loss.  In this scenario the studio gets paid, usually quite handsomely, and anyone with points or percentages does not.  Ed. Note: And then there's this story, in which Donald Sutherland turned down a percentage deal for his role in Animal House and ended up forgoing millions.

What we've talked about thus far are the types of new intermediaries that exist for independent filmmakers, the people or companies that, ideally, help the producer find the biggest possible audience. But there are also some interesting non-market forces at work, the most notable of which is Kickstarter. Since launching as a crowdfunding platform in 2009 Kickstarter has raised over half a billion dollars in funding from close to 4 million people -- just everyday people, like you and me -- for approximately 40,000 projects. Project categories include art, food, fashion, music, film, theatre, comics, and design. Contributions to Kickstarter are considered donations, not investments, in the tradition of patrons of the arts of days gone by, and despite what rational economists might argue, the Kickstarter approach is working.

Film projects constitute about a quarter of all Kickstarter projects (25.8% as of 4/5/2013, which is where the stats below come from, and they're updated daily here), and represent 22.3% of all dollars raised by the platform.

In a talk given by Kickstarter co-founder Yancey Strickler this week at the MIT Media Lab, Strickler noted that more than 10% of films at this year's Sundance Film Festival received Kickstarter funding and that  more than 25% of films at this year's SXSW Film Festival were recipients of his platform's anonymous largesse. Furthermore, 63 Kickstarter-funded film projects received theatrical releases in 2012, six have been nominated for Academy Awards, and one even nabbed an Oscar this year, in the category of documentary short.  What all this suggests is that the crowd -- but not any crowd, this particular crowd, of ardent, discriminating film lovers -- is successfully creating a market where one previously did not exist, i.e. in the area of independent, often niche-interest films. Or as Yancey Strickler put it during his talk here earlier this week: "We have this sense that there's this one unified audience responding to things, but the Internet has a million niches and a million communities that care about various things...And we really know very very little about what works and what doesn't. We're still just guessing."