2010: A Look to the Future: Shorter Windows, Lower Marketing Costs as the Majors Emulate Indies.

Spending the holidays in sunny California after three weeks in Latin America, I was struck with how life is so easy here, the luxury of living so taken for granted. What a pleasure to be home.

Looking homeward, I find the theatrical distribution/ exhibition business is less changed than all the fear of change suggests. The exceptions to this are the decline in DVD revenues and the proliferation of grassroots hybrid distribution models…the last post about this being Gene Hernandez’ article in Indie Wire on Bass Ackward’s proposed release plan after its Sundance debut. Among the first 57 backers was Ted Hope himself.

But the majors -- which constitute a completely different business from the indies -- go on as (blindly) as usual, still luxuriating in the ease of releasing without sweating too much over originality or innovation. The majors preempt the indies whenever the indie business shows vitality. They did it creating the classic divisions and Paramount did it with online marketing for Paranormal Activity. It will be to the majors’ advantage that digital is changing film distribution because it is to their advantage that consumers are watching more movies than ever – and whenever and wherever they want.

Chez the majors:

• Attendance and box office are up and ticket sales hit $10 billion for the first time ever in 2009.

• Internationally the majors $10 billion as well. Often films playing abroad bring in more than they do in their US releases.

• DVD revenues were down to $21.6 billion in 2008, and declined another 13% in 2009.  [Additions by a reader:  Rentals however have spiked a bit.]

• Online distribution revenues are very slow to grow and numbers are not yet published, nor will Amazon likely ever publish their numbers. [Important addition by a reader: To add to the conversation: you state that "online distribution revenue is very slow to grow." While it's true that VOD still represents a relatively small % of overall distribution revenue it's growing very quickly, doubled in 2009 and is currently estimated to quadruple by the end of 2011. Later in the article you point to the success that companies like Magnolia have seen with internet VOD and IFC have seen with Cable on Demand. There isn't a company out there that doesn't agree that DVD distribution is looking at a shelf life of 5-10 years. The decline in DVD sales is an indication of this (even, incidentally, as DVD rentals have spiked - indicating that DVD owner/collectors are hesitant to expand their permanent collections).

The domestic and international growth allows the studios a chance to continue as usual theatrically while they watch the indie sector’s vital and groundbreaking activity. Hulu turns to charging viewers and Paramount stalls on its decision to go with Redbox pending closer investigation on whether the cheap rentals hurt the “other” already declining rental business – in other venues, in cities not serviced by the other venues, etc. The five year agreement to supply movies to Redbox was expected to generate $575 million for the studio. They will decide whether to sign on in June 2010 instead of the earlier deadline of December 31, 2009.

And the tug of war regarding the windows, how long a film will stay in the theaters whose ticket sales have increased in volume remarkably well in this economic time of crisis with a 5% increase of moviegoers continues as seen in Sony’s fight with Regal over a 90 day window for Cloudy with a Chance of Meatballs. The typical interval of time between a studio film’s theatrical and its DVD release has narrowed by a month (four months being the average period between these two windows) over the last decade.

Viewed from the other end of the spectrum, the indies are having fewer problems with windows…witness HDNet which draws viewers offering pre-theatrical if not day and date release of its films of IFC’s day and date strategies. Again this is a distinguishing difference between the business model of the majors and that of indies and as online exhibition continues to grow the marketing power of the indies will need to keep pace.

What also bears comparison is to be seen as we watch the indies and the majors in their international runs. International box office continues to thrive (2009 combined gross $10 billion, 7% more than last year and 20% more than 3 years ago), with day and date theatrical releases from studios protecting them somewhat from piracy and with movies often grossing more abroad than they do here. Fox's Ice Age: Dawn of the Dinosaurs grossed $691 million internationally -- 77% of its gross compared with $197 million domestically. Sony’s 2012 and This is It both helped Sony exceed $2 billion overseas for the first time making it the fourth studio to ever do so, though it was beaten out by Fox which grossed $2.4 billion. The Hollywood Reporter points out that Of 2009's top 10 best-grossing domestic titles, only three failed to gross more overseas than in the U.S. and Canada.

Obviously the indies don’t approximate such numbers as these. So how are they doing? The traditional international sales agents continue to bank on theatrical sales which bear watching in 2010. To their disadvantage, low budget American indies must compete with European subsidized films whose distribution is also often subsidized as well. Latin American cinema (subsidized by their countries) is now gaining subsidy money for coproduction and distribution from Europe as well and paying back investors is less important than to their US indie filmmakers. Video on demand with such entities as Kadokawa MovieGate and MovieWalker, Spain’s Filmotech, The Auteurs, etc. need to be watched. How many films are US made? What returns are being made? Equally, IFC and HDNet, iTunes and Amazon. All need to be tracked publically to know the rate of growth of online exhibition.

The belief that mass marketing through the internet is key to growth and that new demographic targets offer the greatest room for growth may be slow to be implemented by the studios that have been targeting 13- 35-year-old men or families. That thinking is what we see in the predominance of actioners, raunchy comedies, horror and animated fare.

However, women’s flms have been breaking some records of their own (Sex and the City, The Devil Wears Prada, Mamma Mia, The Proposal, Julie and Julia, and the Twilight franchise), and African American women (Tyler Perry’s films, Disney’s The Princess and the Frog) are creating a new space for action. However, this has not extended to Latino or African American films either in the studios or among the indies. It seems like a missed opportunity to many of us.

Smaller indie distributors such as IFC Films and Magnolia had their most profitable years ever thanks to a combination releasing approach. Magnolia senior VP Tom Quinn credits the shingle's stellar year to a combination of the VOD platform, a solid and eclectic slate, plus a great year on DVD through their own label Magnolia Home Entertainment. "We have multiple titles netting seven figures on VOD alone," he added, "and more in the high six." Magnolia prexy Eamonn Bowles also pointed to more efficient marketing spends.

Theatrically, Magnolia is one of about a dozen U.S. distribs outside of the six major studios and the mini-majors to cross into the double-digit millions. It opened 25 films and grossed nearly $12 million in 2009. Magnolia's top title was documentary Food, Inc. ($4.4 million), which received a big marketing push thanks to various grassroots efforts.

IFC Films opened the same number of films theatrically in 2009 with a year-end cumulative gross of $7.2 million. Three titles crossed the $1 million mark, with Sundance pickup In the Loop grossing $2.4 million and also becoming one of IFC's most successful VOD titles of the year. Another big VOD title was Cannes acquisition Antichrist.

The niche films, specialty films, art house films (whatever) remain in their small niche. Of Focus, Fox Searchlight and Sony Pictures Classics, the three surviving studio specialty units we are only hearing about SPC lately who is holding steady and happy with greatly decreased marketing costs thanks to the internet and viral campaigns. And I doubt that Paramount will know how to operate its planned “microbudget" unit, inspired by the $11,000 it cost to make Paranormal Activity, but their “belief” should convince others that there is a space for indies with true low budget fare. A last note on digital marketing: Variety on December 30, 2009, New Focus For Film Marketing gives an insightful view of how marketing costs are being reallocated.

So what is so bad about the business?

In LA we are so lucky to be able to see the entire range of films, from revival, arthouse, foreign and American. But throughout the US and the world, with online services, more people can see more films than ever before.