Producer-Controlled Release

post on September 15th, 2009
Posted in Uncategorized

Service Deal, Self-Distribution, Four-walling

We have come a long way from 1971, when the makers of Billy Jack took their orphan film on the road after a succession of studios abandoned it. The box office of the film eventually reached $40 million. It supposedly still ranks as one of the all-time 100 box office hits ( inflation-adjusted).

In the same year was also birthed Sweet Sweetback’s Baadasssss Song, a film that was written, directed, produced, edited, starred-in (doing his own stunts, too), scored, and then released by hand by Melvin Van Peebles. Carried from theater to theater, a starved constituency embraced the film, its ideas, its attitude, and its moxie. Who woulda known?

What I mean is, who ever knows? Who actually knows when a film will strike a chord? Both of these films found their success after being rejected by “the man,” the distribution complex. Now, I don’t believe in “them” and “us,” or “the man” and us, but I do believe that innovation happens in garages, no matter the product line. And independent filmmakers are the garage-tinkerers of the film business, making the things that others find hard to believe in, no matter how many times they are shown that “not believing” is a big mistake.

The core of the business is structured around “not believing.”

  • Not believing that a film has an audience
  • Not believing that home video will do anything but destroy their business (When it really more than doubled it)
  • Not believing that anyone could be so silly as to want to watch anything on a phone, for god’s sakes!
  • And so on…

And not believing now is even more a priority, with money for slates, money for release in tight supply. Not believing is also a convenient way to avoid all the trouble and heartache and work it will take to make any film the success it is capable of being. It takes that leap of faith and then it takes work and marketing money. It is hard for a distributor to acquire your film. They and their investors are wary. It will cost money to release your film. So, they might want to dismiss your film more than embrace it, as embracing it means toil and trouble that feels risky to them. So, they rely on…

Deal Structures That Devalue Your Film (To You)

This is all about access to market. You want it, they have it. They decide if you get it and set the price for that. This analysis of the market structure has no value judgment, but is meant to strip away the fluff from the press releases, the stroking, the hand-holding solicitation, and look at it clearly. The conventional film distribution deal is tilted away from you, the initial rights owner, and toward the acquiring (rights-seeker). In this way:

  • Last money in is first money out.
    • This means that production investors receive their money after the last investors in (distribution company) get their money back and after they secure their profits.
      • Thus, the investors who take the least risk (investing in a film when it can be seen, and is no longer just stacks of paper and dreams and pitching with hand-waving) are telling you that they are taking the most risk. Is it true that drilling for oil is the biggest risk, or is it picking the gas up in a truck to take to market that’s the biggest risk. What’s the difference here?
    • The structure also protects his (the last guy’s) investment, by holding all subsequent markets hostage until he turns a profit.
    • And because he is holding the entire stream of markets in his hand, he has little incentive to meter or really manage his marketing spending, and in fact is incented to overspend to ensure his potential return because…
  • The major aftermarket value is shared unequally.
    • Home entertainment (primarily DVD) is hands down the driver of the cash value of feature film entertainment. Ranging from 50-60% of a film’s domestic returns to a distributor (and less, but still very significant offshore), producers share in this income at a 20% royalty.
      • I won’t talk about the fact that some distributors can use controlled home video entities to drop the share further…
  • And from there, the terms don’t get better.
Can We Illustrate It?

Illustration of a Producer-Controlled Release

Now, there are some intervening calculations that are not in here, Distributor/Exhibitor Splits, some distribution fees, and more, but this is less about showing every step of a deal and more about where and how money is really made. Overcoming deal points and controlling costs should be the targets in your strategy (of course along with making one dang good film, but that goes without saying). So, reducing the cost of marketing wins in lower costs, but it increases ROI because your investment is lower by that amount. The single most dangerous number on this sheet, then, is the Prints & Ads. I face this every day when I am doing Projections of Potential Income

What’s The Upshot?

Theatrical release, except in extreme cases, is a loss leader. (What’s a loss-leader — You go into Walgreens to buy the tube of toothpaste on special for $.50. They expect you to help them turn a profit by buying a candy bar, and vitamins and bandaids and a cheap pair of flip-flops, all with a higher mark-up. The tube of toothpaste is the loss-leader). It is only by controlling costs and getting to your consumers simultaneously that you beat that part of the equation, along with overcoming onerous fee terms.

Theatrical release may seem to you and even your investors to be the reason for a film’s success. It can be, but in a really twisted way. It is a marketing platform for the rest of the film’s life, and only in rare cases is more than a loss-leader.

So, the film distributor has little incentive to control spending in theatrical marketing (effectively subsidizing box office even more to a not for profit level). They are incented to overspend as “aftermarket protection,” to ensure the market awareness of the film when it hits DVD.

Now, because they will take this marketing money (and profits) back from the proceeds of the film, they are not giving your film money, they are loaning it money and using the film itself as collateral (the hostage). So, they are not really using their money, they, ultimately, are using your money to market the film. And they are going to keep the majority of the biggest market as the ransom for taking the “risk” on your baby. Based on these terms, I usually think a little skeptically about all the talk of “passion” and “love” and effusive praise. These may be real, but the deal is also real, and, like a pre-nup, it controls who gets to sleep in the big bedroom. In this marriage, you always sleep in the guest room or on the couch, even if its a real nice guest room or real nice couch. This love, this passion that is spoken of, ultimately, is a commercial relationship, and its purpose is to make the distributor money. It gotta hasta make ‘em money.

How Do You Beat This?

There are several ways.

  • Hit the lottery at a film festival and sell your film for a multiple of its negative cost based on wowing them. You believe in dreams, don’t you? That’s why you made your film. But this is a dream, and the chute to riches and fame is narrow with a lot of folks shoving to get in it.
  • Negotiate better terms in your deals while all else stays the same. Pretty good luck on that.
  • Take the bull by the horns, take your faith to the table and control your own release. Go directly to your market, work hard and bring the odds down to something like business, not without risk, but much much better than lottery odds.

This Is A Risk Reduction Strategy

Whoa! We just made a really big leap here…

Yeah, but it is definitely a risk-reduction strategy to be prepared to engage significantly in the release of your own film. A woman with choices is a woman of strength. Make plans, create choices for yourself and reduce risk, make your own downside protection. A little further on why:

In my practice, over the years, I have identified Six Key Risk Points in the life of your film.

  1. One of them is gaining distribution at reasonable terms.
    • That’s one, but it has two parts, and those parts need to be in alignment, or it’s nearly certain you’re headed for a fall, or your god is gonna have to come and save you.
    • If you do get the distribution, what will the terms be? Some of the most successful films have had terms that limited the financial participation of the producers and original investors who took the big leap of risk. History is littered with lawsuits that seek to recover profits… This isn’t about bashing distributors. It is just about business.
  2. The next risk point is the film being properly marketed.
    • Most people believe that it is a distributor’s job to do this really, really well. But many things can get in the way of this, including a handsomer film with a better walk coming in the room or some other distraction, a change of executives at the distributor, even on this film that they love, an inherent inability to understand the audience and how to get to them. So many things can intervene.
    • And these are problems in the best of times. We are not in the best of times.
    • You already have to be prepared to discuss your audience, and be ready to offer great ways to get to them in order to get a deal, to get the attention of a distracted and stressed-out distributor. You are already on the road to freedom, when you study your audience and devise a real-world strategy to get to them economically.

In the hands of a conventional distributor, the parallel of conventional wisdom would be that both of those risk points are taken off of the table. If your film is more than your fever-dream fantasy, if it is more a Sweet Sweetback…more of a Billy Jack…more of a My Big Fat Greek Wedding…more of an Illusionist, more of a Manna From Heaven, more of a Memento, more of a Passion of the Christ, or more of an Anvil!, The Story of Anvil, or more of a Metallica: Some Kind of Monster, then it is suited for a Producer-Controlled Release. A Service Deal. All of these films, some out of necessity or rejection, and some consciously, used Service Deals and controlled the release of their films, pursuing a route of profit to them and their investors.

There can be risks to this strategy, too. It also may not be a strategy you have the stomach for; or you may not be able to mount and manage the small enterprise it requires, but I know that smart investors seek all the protection they can get, and this can be structured as a min/max deal that gives you all the strategy alternatives you might seek, and leads you onto a path of reducing yours and your investor’s risk, and onto the path of profitability. It is really dependent on what you want to be doing with your life, with your time, and with your films.

I help filmmakers understand the nature of this as a choice a lot. It is not for everyone, but it is for a producer who has the guts, the stamina, the savvy and the eye on profitability and risk reduction.

With all of the thinking about this topic, the work we have done on it, and the detailed work we have done for clients, we have come to the conclusion that Producer-Controlled Release, our term for it, both describes it better than pevious terms, and gets at the heart of its facility and describes its responsibilities.

Jeffrey Hardy
Onward and Upward

Trust and Opportunity

post on January 17th, 2009
Posted in Uncategorized

There is so much to write about nowadays. Today. There is so much to write about today.

But the key issue is that, in looking back over the history of the movie business, at each crunch juncture there was also significant opportunity knocking on the door. At each of these points of crunch or change, those who reached out for the future caught a wave and transformed the business. All of the primary junctures in the business of filmed entertainment have been driven by technological advancement, some in production, but more in delivery. We are moving further and further from the appointment with entertainment and more toward the finding and accessing of entertainment. Appointments will always hold their mystique and audience, but the bulk of entertainment as we go forward will not be by appointment but “On-demand.”

New Technology Create Consumer Choice

These waves have come faster over the last thirty years. A new technology does not any longer have two decades of free elbow-room. Based on DVD, with a ten year growth curve, new technologies may have a decade in which to run free, and then things will swing in a new direction. Contemplating this cycle speeding up can spin the head, but it will most likely speed up and proliferate. But key is the fact that new technologies offer new choices and freedom for consumers, certainly shown by the embrace of VHS and then DVD, and now we are on the cusp of VOD (Video On Demand) in all its myriad forms. On Demand describes the relationship filmed entertainment (filmed information) will have with consumers. They will have more choice, more ways to access that choice, and they will enjoy their choices.

Now, most large organizations are focused on building fences around their operations and fighting down competition, holding tight to their assets and charging as much for admission as the market will bear.

Rump organizations, start-ups, new producers are just looking for an outlet, any outlet. They are part of the competition. They want access to consumers, and they often see the large organizations as their path to those consumers. But new technology blurs those relationships, and producers can be distributors now. Even Rupert Murdoch looked at production and distribution gear and technology and predicted that there could easily come a day that the studios would be obsolete, producers would not need them for consumer access.

Double-Whammy Time

Is this missive a recipe or a specific plan for going through the double-whammy times we find ourselves in? What do I mean by “double-whammy?” We have truckloads of new technology choices, from mobile delivery capabilities to set-top boxes about to deliver ultimate choice straight from the Internet to the TV. This is opportunity. And it is disruption for standard business. This is one of the whammies, the disruption. Disruption causes job loss and changes in business. Look at the music business over the last ten years for a lesson in disruption. The other whammy is the financial contraction we find ourselves in; a loss of trust in the system. And the last eight years have been nothing, if not a steady chipping away at the foundations of trust. Now, finally, the financial system has stopped to look at its own foundations and found them less than solid. What in this house of mirrors do we now truly trust, and what do we jettison as distrustful. This is a contraction. And this stopping to examine and probe further has brought us all closer and closer to a halt, fearful we cannot expand because our previous expansion was not based completely on reality. The jig is up, in other words, and now we are left with a mess to clean up, like after a frat-house party held in a crumbling old mansion.

Who Has A Plan?

So, again, is this missive a recipe or a specific plan for going through the double-whammy times we find ourselves in? Well, no, but there are a couple of ideas that I have been working on as I watch the theatrical business wobble and falter, not only for good independent films but for bigger films by highly experienced and big-ticket filmmakers. It derives from my belief that every film is, ultimately, a marketing problem. The theatrical exhibition business is, largely, a marketing platform for a film’s follow-on delivery systems. With DVD being worth near 3 times theatrical exhibition, this is not hard to figure out. DVD is not growing, but it is still big. With 239 million DVD players sold in the US in the last ten years, if they were all still working, would provide two for every household among the 112 million US households. We have, in reality, greater than 90 percent DVD-player penetration. Over the last eleven years, since inception, 9.52 billion DVDs have been sold. 1.6 billion of those were sold in 2007, and in the first half of 2008, another 660 million were sold (about 10 million more than in the first half of 2007). We definitely are in a contraction, though, and so is DVD, with sell-through and rental both down in the upper single digits last year.

Technology Can Turn The Tables

But there are still a lot of DVDs to be sold. Rump players are less focused on the giant plays, and more on finding their own niche of customers. And new technology offers us ways to break through and market niche filmed entertainment to consumers without the fantastic expense of a theatrical release that can weigh down the Return on Investment. This is true for horror films as much as it is for art house dramas. Overcoming the marketing gap for these films is an issue I have been working on for a good deal in the last six months. I think there are very interesting ways to overcome it, but each film needs its own individual strategy.

In this time of double-whammy, can we find our way to embrace innovation and technology and deliver? Can we find opportunity. I think the effective business plans of these next several years will focus more on self-reliance, on being thoughtful about the path from concept to audience, and I think the next several years will embrace change and they will embrace the increasing interconnectedness of the world.

Within this I see nothing but opportunity. Opportunity for those who can innovate in their content, innovate in their approach to delivery, and innovate in their marketing, to build and grow businesses and careers.

And Don’t Forget The Power of Honesty and Trust-Building In All Endeavors

This missive is, actually, a call to embrace the opportunity within these momentous changes, and to embrace the opportunity to build a system of trust in all of our endeavors. We can all contribute to an atmosphere of trust in our business and in our lives, and if we do it in ours, we encourage others and demand that others do it in theirs.

I think there are many more Miramaxes to be born, though they may start looking more like Social Networking, or something else we might not even know yet. I think there are more delivery technologies to be innovated, more marketing approaches to be tried, and more businesses to be built, they just may not look like all of the other old businesses…

Onward and Upward
Jeffrey Hardy

Jim Cramer Is Kind Of A Jerk

post on October 23rd, 2008
Posted in Uncategorized

Poor Jim Cramer. Now the roof of the house has fallen on him—but this is a house he helped in building. For some time now, I have been planning to write a piece calling Jim Cramer a Jerk (or much worse, actually). Now, the clarity of his Jerkness is so much more evident to all. But, do I want to call the guy a jerk for yelling ‘fire!’ in a crowded theater? No.

For some time Cramer has been talking about companies like Google and YouTube, companies that, for their popularity, show that they provide serious value to the consuming public. He says about Google, that “It’s just a parasite… It doesn’t create content, it steals it, borrows it, shares it.”

This is similar to the type of screaming we would have heard in the late ’70s with the birth of home video, and the studios and others were afraid that giving consumers freedom of choice and access to content would destroy the film business. The fact of the matter is that this choice grew the business; it ultimately grew it in very significant ways, including tripling the income stream. What was the harm, though? This screaming and fighting that the content owners engaged in allowed them to gain even more control of a content stream that created more and more profits for them. Then they hoarded these profits for themselves, not sharing them with the content creators, not sharing them with the artists that contributed–unless they were “brand” artists that formed part of their “market insurance” and high cost as protection mindset.

DVD expanded, nay, exploded this market value again, and the control of the marketplace they sought to exert at the big media companies served to give them years of growth, and to ultimately turn this growth into short term profits for their growth machines, but to limit the overall value of the marketplace over time. Pricing all DVDs as sell-through is a recipe for failure of many pieces of filmed entertainment, and now there is almost no going back on that, is one of those mistaken ingredients in the recipe.

We Are In A Window of Opportunity

We are at a new window of opportunity, and Google and companies like that are part of this opportunity, democratizing access to content. A part of access is being able to find the content you want yourself, that you can cleave to your passions, your fetishes, your heart; it’s almost like a right of being human. Humans want to communicate with each other in many ways (and filmed entertainment runs from the sublime to the ridiculous in communication) but there are folks who want access to a broad smorgasboard of content of all types. The Internet, with its search technologies, its delivery platforms, its ease of transaction and/or advertising support (and even when content is just plain FREE)–the Internet is crucial to that access, to the smorgasboard surviving.

Jim Cramer Is Kind Of A Jerk

So, Jim Cramer is a jerk for not seeing that this growth of markets is good for all, and he and those who think that the only way to run a content company is to have it behind gates with armed guards, are very mistaken. All transactions between people and content do not need to be under armed guard oversight. The record business showed us that this mindset creates dinosaurs that are easy to topple and brittle of bone. Crash, go boom and break into thousands of tiny pieces.

The Film Business Needs To Do It Better

In the film business, we need to embrace and create value in these rump marketplaces, and be committed to being where the consumers want to access content when they want to, and we need to give them value for the transaction, not seek to manipulate them into a transaction they then regret.

This is like the over-the-top campaign for a film that is a disaster of artistry. All the cynicism of the marketers takes over and shoves it down unwitting throats. No. We can do better and we can seduce and sell quality content based on a knowledgeable transaction, and have a win-win sale of content to an informed and enthusiastic audience. And we can make money at it and create goodwill, rather than an “us against them” atmosphere. Jim Cramer is part of the old way of thinking, and so lack of control makes him want to get out the transaction police. But look at where this kind of thinking has gotten him–and gotten us all.

Onward and Upward, Jeff

Windows of Opportunity and Independent Film

post on September 12th, 2008
Posted in Uncategorized

Every so often, a window of opportunity opens up in the motion picture business, and independent filmmakers, never a unified lot (hence the independent moniker), have a chance to dive through or be pulled through to the other side when the gatekeeper studios gain control.

All of these opportunities are based on technology: sound, camera, lighting, projecting, and signal, copy and transaction methodologies.

We are now at a watershed where all four elements of: capture (digital cameras to pocket phones), signal (broadcast digital dispersion) copy (digital download and streaming) and transaction (digital micro-payments to digital subscriptions) are about to transform the business of filmed entertainment in a mighty way.

Harking back to the name of this newsletter, FilmDependent, we are all pursuing personal dreams and skill sets. Often a skill set and love of, say, just handling film stock and watching it flow through the moviola, are so strong that we reject or dismiss the changes in editing coming at us.

Windows of Fear

The studios, too, have a strong history of fighting down and rejecting new technology as an almost certain erosion or cannibalization of their stranglehold on the marketplace and the gateways there. This is historical. All large, established organizations focus more on defending the gates than on innovation.

Once they have been mollified, and they have held innovation off until it works the way they want it to, and the new technology is theirs to control, all of their fighting subsides, and the standards are theirs and everyone has to go through them to get to the marketplace.

Window of Opportunity For All

We now have a window that is narrowing as the studios will inevitably seek to control all digital delivery streams. I don’t care if it’s the Internet download, or the iPod, or the mobile phone, but all digital platforms are now moving into play, and these platforms provide and will provide the possibility of direct access to consumers of filmed entertainment.

It is anticipated that as much as 50% of content income will be delivered through IP (Internet Protocol) streams and downloads by 2012 or 2013. The Internet is the new TV, but it is also the new smorgasbord personal screening room. This expansion of access, somewhat like the addition of cassette tapes to the marketplace, allows people to pursue their own muse in entertainment, and broadens the potential for independent makers and distributors to build audiences, both niche and substantial.

It is in finding, communicating with, delivering to and transacting with these audiences that is at the crux of your success in this new world. Since I look at every film and its financial success as primarily a marketing problem, I believe it will be no different here. Understanding your movie, understanding its core audience, and how to reach and move them is key to the equation of success.

At the same time that IP and mobile technologies and the like provide a platform for delivering, they also provide the savvy and focused entrepreneur with the window of success. They also can change the game on costs of communicating and transacting, taking movie delivery into the realm of this entrepreneur while holding also the opportunity of scale to the film that can gain wide acceptance.

There is a little bit of revolution in my soul. Does this revolution disdain studios or large organizations? No. I embrace them as partners on the right projects, and I embrace them as clients. But for many indie films, they create a competitive battleground in which the competition is completely unbalanced, uneven. I want the entrepreneur to have a chance in this environment, and that is where the revolution lies, in taking tickets that could have gone to a studio, in expanding the audience of films to the disaffected and under-served or un-served. This is the mission of my revolution, to enable the dream of the film writer and maker to meet with the dream of the consumer. I call this shared dream the “through line” (thru-line). It is the arc of inspiration and meaning that brings us all to film, whether making, delivering, just consuming, or all three.

This installment is a preamble to what I hope to be able to deliver on a regular basis, a series focusing on a succession of topics that, at least at this juncture I intend to drive through all the markets.

But, who knows? In my practice, I am constantly grappling with ideas and issues brought up by my clients and the films they are making, buying or marketing. These ideas and their currency may send me down one track or another. If they could be helpful, eye-opening or thought-provoking to you, I want to pursue them.

Onward and Upward!
Jeffrey Hardy

Sweet Land In Theaters

post on December 30th, 2006
Posted in Uncategorized

Sweet Land is now in theaters.

When we first read the script for Sweet Land and started working on the project in 2002, it was called Quiet Breathing. We liked the quiet and strong story, and we liked working with Ali and his cohorts in building their financing package, including providing our Markets Report, Comparable Pictures Reports (ROIs) and a Core Audience Analysis.

Now the film is out, and receiving very nice reviews. Check out the Sweet Land Review in Village Voice. Congratulations Ali and folks!

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