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by Anthony Kaufman
March 30, 2008 5:55 AM
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Webolution or Wild Unknown: Digital Rights in Indiewood 3.0

Is online distribution the future for indie releases? Probably, but for now, don't bet your budget on it. This year, at festivals from Sundance to Berlin to SXSW, industry professionals and filmmakers have been debating the state of feature streaming and online delivery at cocktail parties and on official panels with names like "Webolution!" and "Filmmakers on Demand."

With the theatrical marketplace over-saturated, concerns that DVD revenues are beginning to dip, and evidence that audiences are happy to stay at home to consume their entertainment, the Internet may seem like an increasingly viable destination - especially for the hundreds of films from this winter's festivals that have yet to garner interest from conventional distributors.

Even those movies that are getting picked up have been thrust into the debate, say insiders, because digital-rights proponents say established film distributors are not doing enough to exploit these areas.

Cinetic Media partner Robert Nathan, who is spearheading the company's new Cinetic Rights Management division along with John Sloss and Janet Brown, established in the last six months to navigate the world of constantly evolving digital platforms, told indieWIRE, "If you were to do an all-rights deal and your distributor doesn't do anything with the bundle of digital rights, would you have been better off carving them out of the deal? That is, are you better off in the aggregate finding someone who is doing something with those digital rights?"

"That's the economic pressure that should be brought to bear when film distribution deals are done," he added. "And that pressure is just going to increase."

Netflix's Liesl Copland agreed. "I'm not convinced that the studio all-rights acquisitions are placing value on digital rights, because there's still a sense of conservatism on how to value those rights," she said. "They're not passing that value to the filmmaker upfront."

After staking out an early claim to the DVD rental business and experimenting with online streaming for about 7,000 titles, Netflix is now moving aggressively to acquire nonexclusive digital rights for its PC-only instant viewing service and an as-yet-to-be unveiled set-top box that will allow subscribers to watch movies streamed directly to their TVs.

"We're very interested in those rights," said Copland, though she admitted, "[The industry] don't have the data to say what these digital rights are actually worth."

And that's the million-dollar question. How much are these rights worth for producers and filmmakers? "Right now, the answer," said B-Side's Chris Hyams, "is that there really are no filmmakers who stand to make any money back on digital rights. From the perspective of online distribution, it's a nascent business. The reason that Netflix and Blockbuster are on it now is because they believe it's the future. Until, then, everyone is happy to lose money in the short run." Video-on-demand, on the other hand, which is also a segment of the new digital rights discussion, is already more established, say industry observers, because there is a more stable infrastructure, with consumers easily set up to watch movies via cable delivery.

At this point, Netflix appears to be one of the few places where a business model is emerging for online streaming. While specific deals are different for every film, of course, Copland contended that Netflix "would pay more than a home video distributor or more than a theatrical entity would be willing to advance, given their P & A commitment."

Jason Janego, head of Business & Legal Affairs for Magnolia Pictures, pointed to their partnership with Netflix on the distribution of James Scurlock's credit documentary "Maxed Out." "For that particular title, Netflix performed as well or better than expectations," he said, claiming that it was successful for Netflix's Red Envelope Entertainment, Magnolia and the filmmakers. "It would encourage us to make more films available on that medium," he added.

Netflix, contrary to iTunes, is also more likely to acquire those indie films that don't have a distributor already in place. (iTunes's movie page is dominated by studio content.)

According to Copland, "If a filmmaker plays at five film festivals and it turns out that Roadside, Magnolia and Goldwyn all said they loved my movie, but they don't want to spend half a million to market the film, they can take X dollars from Netflix for the Netflix rights, and then hire a publicist for $5,000 and book a few theaters and then we can enable the film, it gets reviews, and then consumers can come to us for it."

IFC Films, on the other hand, has taken most of its library, nonexclusively, to iTunes, where rather than streaming, like Netflix, allows consumers to download movies. (Some argue that the streaming model is inferior, because it demands a consistent broadband connection and the viewer's attention at that moment. iTunes' new rental function allows users to watch within 30 days of the download, in a 24-hour period.)

IFC also has a 60-day exclusive pact with new rentals through Blockbuster's online subsidiary Movielink.com. While it's too soon yet to see data on MovieLink rentals or whether the exclusivity could diminish the online eyeballs for smaller films, Lisa Schwartz, IFC's Sr. VP of Sales and Business Development, noted the number of sales for their films through iTunes is "encouraging" and a "viable means for people to consume movies."

However, Schwartz acknowledged that it's still a fraction of their business. "I wouldn't say tiny," she told indieWIRE. "I'd say interesting. If I were a much larger studio, they might say tiny. But when you're in specialty division, a couple bucks get interesting."

IFC's top-performers on iTunes include a wide array of both old and new movies, including Errol Morris' 1988 documentary "The Thin Blue Line," Todd Graff's 2003 comedy "Camp," and Kevin Wilmott's surprise 2004 mockumentary hit "Confederate States of America."

But the reality of the sector is still daunted by several practical concerns. As Hyams noted, "Once you get to feature length content, people don't want to watch it on their laptop or iPhones." Once Apple TVs become widespread or streaming set-top boxes become the norm, things could look very different.

For now, Cinetic's Nathan said, "It's still unclear what's going to work for feature films and what revenue model will succeed. But it is clear that digital consumption, whatever the platform, is a big part of the future," Nathan continued. "This is a set of rights that are going to matter. The question is how soon and under what economic model? And if anyone tells you they know the answer to that, they're lying."

Currently, the various models include download-to-own, such as iTunes, or subscription-based, such as Netflix. In the age of "freeconomics," however, as outlined by Chris Anderson's March 2008 WIRED cover story "Free! Why $0.00 Is the Future of Business" (link), "the trend lines that determine the cost of doing business online all point the same way: to zero." The most successful future model, then, could be simply to give the movies away.

That's at least what Hyams's B-Side has been doing in theaters: B-Side has been promoting over 300 free screenings around the country for their most successful title, the music documentary "Before the Music Dies," in the hopes that it will drive online sales. Since B-Side launched, according to Hyams, the movie has sold 1,362 download units (40% at their highest price point, DVD resolution, for $7.99), compared to 1,059 hard DVD units. (Filmmakers get 70% of revenue, minus 40 cents per copy for server fees.)

"I don't believe there will ever be a time when you can just put your movie online and make money," said Hyams, who believes that a cross-platform approach is integral to getting movies watched and purchased.

Whatever happens, insiders say filmmakers need to make sure they're not left on the sidelines. "I would agree don't bet your budget," said IFC's Schwartz, "but on the other hand, be pleased when people you're doing business with have taken the time to do these distribution deals with these outlets, because it's meaningful over time."

Magnolia's Janego concurred: "From a filmmaker or producer's perspective, it's an absolutely relevant thing to discuss with a distributor and it's becoming more and more relevant. From a filmmaker's perspective, every little bit counts."

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