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INDUSTRY BEAT
Why VOD is turning into a profitable avenue for indie filmmakers.

By Anthony Kaufman

DARK MIRROR.

If you're a filmmaker looking for an edge in today's new digital distribution universe, it can't hurt to come up with a title for your movie that begins with the letter "A" or "B."

It may sound facile or crass, but with Video-On-Demand an increasingly important segment of the business, recent indie movies like The Answer Man, A Quiet Little Marriage or Bart Got a Room will advantageously sit atop the catalogue of cable operator's On-Demand listings, while movies like World's Greatest Dad and What Goes Up will sit at the bottom.

"It always helps," admits Nolan Gallagher, CEO of Gravitas Ventures, a new independent company which licenses VOD content to cable operators. "We've seen examples where films have benefited from the fact that cable guides are alphabetical in nature," he says, noting the success of a recent documentary called American Meth. "We definitely think the titling had an effect on its buys."

VOD is certainly here to stay and growing at 20 percent annually, according to recent industry estimates, which has prompted more and more distribution companies, from the biggest studios to the smallest indies, to stake their future on it. But how much can individual filmmakers actually gain from the new distribution platforms, both monetarily and in exposure?

As a business model, VOD is still in its nascent stages, which makes it hard to get full accounting. Cable companies keep the breakdown of their revenues closely guarded, with even some distribs being left in the dark about specific information, like in what areas and for how much money individuals are purchasing the movies. But there have been some indisputable indie successes in the last year.

Pablo Proenza's Dark Mirror, a low-budget supernatural thriller, for example, was released on VOD in early May as part of IFC's Festival Direct Midnight slate and has become one of the company's top-selling titles, with an estimated 110 to 120,000 buys priced at $7 a pop. After cable companies take somewhere around 50 percent and IFC takes its cut, the film's sales agent Josh Braun expects the filmmakers to take home $200,000 to $250,000 in back-end revenue. (The revenue split for filmmakers tends to be noticeably more beneficial with VOD than theatrical exhibitors.)

"Maybe I'm being optimistic," says Braun, "but there's a good amount of money coming in a relatively unobstructed way." Because Dark Mirror didn't go out in theaters, IFC's expenses to distribute the film were quite low — VOD expenses include digitizing the film and transferring the file to the cable operators — and therefore filmmakers take a larger share of the gross.

By all accounts, the most successful VOD films fall into one of a few categories, horror-thrillers (Dark Mirror, Magnolia's Surveillance or The Mutant Chronicles), sexy stuff (like some of IFC's racy French fare) or star-studded comedies (IFC's I Hate Valentine's Day, starring the leads from My Big Fat Greek Wedding).

"The films working on cable VOD are going to be the films that people want to watch with other people, things that are provocative, either from a violence or stylish sense, or a titillating standpoint," says Cinetic Rights Management's Matt Dentler, who helps oversee the company's new VOD platform, Cinetic Film Buff, as well as deals for broadband distribution through Web sites like Hulu and iTunes.

While the success of genre films on VOD doesn't sound encouraging for the dozens of serious indie dramas struggling to find viable distribution opportunities, producers and sales agents still see the model as beneficial. "I'm feeling much more bullish about [VOD] than previously," says Andrew Herwitz, a sales agent who has made a few VOD pacts, i.e. IFC's Festival Direct release of Erica Dunton's rock 'n roll road movie The 27 Club and Magnolia's upcoming Ultra VOD release of Cheryl Hines's comedy Serious Moonlight. While The 27 Club had meager buys in the low-five figures when it was released in May, "it's not a totally insignificant amount of revenue," Herwitz says. "Given the fact that it's an unknown film and where we are in the maturation cycle of VOD, I think it's promising."

With the higher profile Serious Moonlight, which stars recognizable names Meg Ryan and Timothy Hutton, Herwitz is much more confident. "Judging from the projections, which are meant to be conservative, we can make a lot of money," he says, adding that he'd be surprised if the filmmakers didn't see six-figure returns from the VOD run.

Humboldt County producer Jason Weiss, on the other hand, says he hasn't seen a single cent a year after the release of his Northwestern pot dramedy through Magnolia's Ultra VOD program — largely because of the monies deducted to cover the upfront advance and theatrical marketing costs.

"We made a lot of money on Video-On-Demand," Weiss says, noting final revenue numbers were somewhere between six and seven times the roughly $100,000 theatrical gross. "But even though we haven't seen any returns, it allowed people from all over the country to see and discover the movie," he says. "We were shocked to see how many people scrolled down to the H's, and read a summary that really doesn't tell them anything about it, and they still watched it."

Surprisingly some filmmakers are ending up in better fiscal shape by bypassing the theatrical route. Joe Swanberg says the VOD performance for his latest film, Alexander the Last, was similar to his previous Hannah Takes the Stairs. Both were released on IFC with grosses around $250,000. But Alexander may turn out to be significantly more profitable because the higher expenses associated with Hannah's theatrical release ate up all of its VOD proceeds.

In the nearly two-year time span between the release of Swanberg's two films on VOD, a lot has changed. Swanberg's producer Anish Savjani notes that IFC — like other VOD providers and brokers — have expanded the number of companies that offer their service. While this leads to greater exposure and the potential for a wider audience, it can also lead to increased expenses for the distributor to recoup before the filmmaker can see any overages.

As more films try to capitalize on the new revenue stream, we could also see a situation where the vast bulk of available indie movies could cannibalize each other's niche audience. IFC's Jonathan Sehring says the difference between movies that fail or succeed on VOD still comes down to which titles have solid promotion and placement: "You still have to be able to market them," he says.

Currently, rival VOD players are also jockeying for space with the cable companies, trying to get designated channels — i.e. IFC Festival Direct, FilmBuff — to establish overall brand recognition in the space. "That's important real estate," says one insider. "In some cases, VOD has gotten so popular so quickly that some of the companies have started running out of server space."

But Gravitas' Nolan isn't worried about a VOD glut. "A rising tide lifts all boats," he says. "The more companies that get involved in VOD, the more they're helping to change consumer trends, and the more people will likely see a movie with their remote control than going down to the video store or the movie theater."



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