Chances are if you recently watched an independent or documentary film, you more than likely watched it on Netflix. The growth of Subscription VOD (SVOD) services like Netflix and Amazon Prime have been a tremendous boon to smaller films, not simply in terms of reaching a wider audience, but also in injecting a much needed revenue stream into indie film. Yet the growth and power of Netflix, and now Amazon, has brought a new set of complications to the rapidly changing business of independent film distribution, creating new factors filmmakers must consider before taking SVOD dollars.
As has already been witnessed this week, Netflix is willing to spend whatever it takes to snag the SVOD rights of films they are interested in, having preemptively bought "Fundamentals of Caring," "Tallulah," and "Under the Shadow" ahead of their Sundance premieres. These very lucrative deals have consequences for these smaller films as they will be far less attractive to theatrical distributors. Every Netflix deal is different, but ultimately it comes down to windowing. When Netflix is willing to overspend for a title, they end up severely limiting, often eliminating, the film’s ability to make revenue via premium cable (HBO, Showtime) and transactional VOD (renting or buying a film on iTunes, Cable On Demand, etc.).
As a result, the bigger all-rights distributors will no longer touch these films, while smaller companies will be far less financially motivated to spend money on a theatrical release. One of the reasons companies will put publicity and advertising dollars, to say nothing of the tireless work of their smaller staffs, toward bringing a film to theaters is not simply for box office dollars. They are marketing a film and building its value for its post-theatrical life as well. In other words, they are partially investing in the film’s VOD, SVOD, and premium cable potential. Things get even more complicated on the international front as Netflix also demands the international SVOD rights — Netflix is rapidly and aggressively trying to build its dominance abroad — which all but eliminates an international theatrical distributors’ interest in the film. As one sales agent recently explained to Indiewire, "Why would a German distributor spend money theatrically releasing an American indie if it doesn’t own the the film’s more valuable German SVOD rights?"
"It’s true that doing these pre-buys for SVOD can create some challenges down the road with transactional, foreign and cable VOD, so someone on the filmmaking team better have a strong understanding of how to negotiate and plan ahead for these windows," explained Dan Braun, Co-President of Submarine Entertainment, which handles sales for many festival titles. "It puts a lot of pressure on a filmmaker to also be a very strategic business person."
Added Braun, "Smaller theatrical distributors may be frustrated, but the reality is that Netflix reaches millions and that appeals to filmmakers and some will sacrifice theatrical to reach a very large audience. It depends on what your dream is, and how great the pressure is to guarantee a return of money to your investors."
This then often comes down to an issue of branding for independent filmmakers. There is a cachet to being released theatrically. The filmmakers, who are also investing in their futures, are also marketed and become known quantities during their film’s pre-theatrical publicity run. On the nonfiction front, Netflix can certainly make the counter-argument they offer more in the way of branding than a smaller theatrical distribution run, having just nabbed two of the five Oscar nominations for Best Documentary ("Winter of Fire" and "What Happened, Miss Simone?") and having launched a massive publicity campaign for "Miss Simone," which shined a particularly big spotlight on director Liz Garbus.
One of the wild cards, and something many industry insiders are keeping close tabs on, is how Amazon approaches its second Sundance since launching Amazon Original Movies and hiring longtime indie producer Ted Hope to head the division. So far, Hope’s team has been spending money on films they are also producing, having backed the production of Spike Lee’s "Chi-Raq" and Jim Jarmusch’s new film "Patterson," which wrapped in December. What separates Amazon from Netflix is that Hope is promising theatrical distribution.
"Chi-Raq," for example, opened in 300 theaters in December before becoming available for sale across all VOD platforms (not just Amazon); it will eventually stream for free to Amazon Prime customers. This is a very different model than what Netflix is offering and is understandably more attractive to independent filmmakers, which leads to the question: Will Hope open Amazon’s wallet to acquire films, not simply produce them?
Last March, Amazon very quietly bought — the deal wasn’t announced until six months later — "Creative Control," the hottest title to come out of SXSW. The announcement indicated Amazon was partnering with Magnolia Pictures to theatrically release the film in early 2016. Then just yesterday, Amazon announced it picked up Joshua Marston’s "Complete Unknown," with plans to partner with a theatrical distributor for a fall release.
"Considering how significantly a great theatrical run can elevate the profile and the value of ancillaries of a film, Amazon’s model is a development just waiting to happen," predicted Braun.
And what happens if Netflix is forced to follow Amazon into theatrical releasing? That’s what has smaller and big distributors really nervous as Sundance kicks off.