October 3, 2012

In VOD We Trust: Navigating the Minefield of the Ever-Changing Distribution Platform

Right off the bat, what we can tell you with confidence is that in a year's time, perhaps even six months, half of the information here will be obsolete. The Video on Demand (VOD) platform, still in its nascent stages, is an ever-growing, ever-changing child with new quirks and habits forming all the time.

The film distribution market is changing so rapidly that articles come out daily about this new platform or that new distribution model, this rise in streaming revenue or that drop in DVD sales. And again, nothing is changing faster than VOD.

With its multiple meanings, qualifications, connotations and consequences, the VOD world for the independent filmmaker is a minefield, to paraphrase filmmaker-turned-digital distribution guru Jon Reiss. And until (if ever) there is predictability in monetization or, at the very least, a standardization of the VOD market, we'll have to take what we can at face value.

Terms of the Trade

First and foremost, one must understand the terms surrounding this often-cryptic area of the entertainment market. VOD can be broken up into three categories, with a host of sub-categories, depending on whom you ask. One used to be able to distinguish between cable VOD (download-to-rent) and broadband VOD (download-to-rent or download-to-own), but those distinctions are getting blurrier the further we explore.

There is transactional VOD. This includes IVOD (Internet VOD, like iTunes or Vudu rentals) and EST (electronic sell-through or download-to-buy, like iTunes or Amazon purchases).

Then there is AVOD (ad-supported VOD). This includes platforms like Hulu, YouTube and SnagFilms.

And finally, there is SVOD (subscription VOD), which includes websites like Netflix, AmazonPrime and HuluPlus.

"It's very confusing because terms change," admits Reiss, admits Reiss, a filmmaker and media strategist, who wrote Think Outside the Box Office and co-wrote Selling Your Film Without Selling Your Soul. "Different people use different terms, and the terms change with different people at different rates. When it comes to negotiating digital contracts, it's extremely difficult to go over, and not every lawyer is versed in what the distinctions are within the rights."

Platforms and Placement

As consumers steadily increase their spending on home entertainment systems, and manufacturers continue to build new platforms that span multiple entertainment genres—linking television, video games and movies on Microsoft's Xbox or Nintendo's Wii—Hollywood's potential to increase ancillary revenue streams grows as well. The challenge is in making sure that your independent title is made available to the over 100 different media platforms.

"Cable VOD probably has the most potential for lucrative outcomes," says Reiss. "But it's very difficult to get on there, and cable VOD is very picky about its content. It's very studio-oriented and it helps if there has been a substantial marketing campaign behind it—usually a theatrical release."

Because of this, once (and if) you get your title with a cable VOD provider, you have to worry about the consumer even being able to find it. Both Reiss and Richard Lorber, founder of independent film distributor Kino Lorber Inc., agree that the navigation system on cable VOD platforms is inferior to other search systems on other platforms, allowing just some information on the screen at a time and often making searching titles difficult. Most often, numbered titles and ones beginning A through D end up the most viewed titles simply because they are more accessible to consumers.

"If that's any indication of the state of cable VOD market, then they've got a very long way to go," says Lorber. "If the navigation system doesn't get a makeover soon, cable VOD might be outrun very quickly by over-the-top platforms like Netflix or Hulu or more."

Across these many VOD platforms there are massive amounts of digital distribution methods, each with slightly different technical specifications. Nolan Gallagher, founder and CEO of Gravitas Ventures, a distributor that digitally releases 500 movies a year, including 100 documentaries, says, "The great news is that a filmmaker can reach 100 million-plus North American VOD homes on the same day. To accomplish that, it helps to work with a company with a track record that can make sure each operator receives the specific film file it needs, whether that is an mpeg-2 or h.264 file favored by cable operators, or a proprietary format enjoyed by Internet VOD operators like iTunes."

Just as your strategy for releasing should be different whether it's theatrical or direct-to-DVD, so should it be different for the three main VOD release strategies: transactional VOD, AVOD and SVOD. Peter Broderick, a distribution strategist and president of Paradigm Consulting, says that splitting up rights is a key way to do this. "Besides due diligence in finding a knowledgeable partner for distribution, you want to avoid cross collateralization," he explains. "This refers to expenses from all of the avenues of distribution getting deducted from the revenues from all the avenues of distribution."

In other words, don't put all your eggs in one basket. Oftentimes a filmmaker, in just trying to get the film out there, will release on one platform and pigeonhole the content. The goal is to release on as many platforms as possible in a timed manner—something the industry calls "windowing."

"A window is the amount of time that one rights category [or individual right or platform] for a film is allowed to monetize before another rights category or platform," Reiss explains. "For example, perhaps a short, two-month theatrical release window followed by VOD and other transactional digital rights, then a DVD release a month later. SVOD and AVOD might be a month or more after that, with separation of the two a common practice. Or perhaps a small cable deal is day-and-date release with transactional or SVOD or somewhere in between. Depending on the type of cable deal, the amount of money being paid, the demands of the cable network and what can be negotiated, it can get very complicated."

Those are just a few of the possible variations of windowing, which is a wide-open field with very few rules, unless you are a studio. It's probably a good idea, then, to partner with a company that knows what it's doing, or hire a producer for marketing and distribution.

"You want to make it very easy for consumers to go to whatever platform they prefer most and be able to stream or download your title there," Gallagher advises. "We only take exclusive rights for VOD. Filmmakers seem to like the fact that we've set realistic expectations about where we can get a film distributed, and most cases within 90 days of signature on a license agreement, the film is in tens of millions of homes."

Numbers

There are many rumors flying around as to why the big players don't or won't share numbers, but the excuse that makes most sense seems to be that VOD is simply so much different from traditional distribution that the key players in the field are still trying to figure out the complications and the costs.

"It's not that people are necessarily hiding things," says Gallagher. "The fact is that it's very complex. When an independent film opens in four theaters in New York and Los Angeles—and those four theaters report $10,000 each for box office earnings—that's a very easy amount of information to compile and publicize. But with VOD, we're talking about over 100 different operators, each with its own way of compiling and disseminating information."

The numbers that are most readily available are general industry numbers, and sometimes a distributor will report success stories here and there, like The Film Collaborative's case study on Gravitas Ventures and Variance Films' distribution strategy for Matt Harlock and Paul Thomas' 2009 documentary American: The Bill Hicks Story. We do know that for the first time, digitally delivered movies topped movie rentals in the second quarter of this year, which TheWrap reported in July. Compared to figures from 2011, consumers spent $1.2 billion on streamed movies, an 81 percent increase, and nearly $1.1 billion renting DVDs in the second quarter from stores and kiosks, a 27 percent decline. We knew this was bound to happen, and the sea change will continue, as these numbers indicate.

NewVideo, a Cinedigm company and the largest aggregator of independent digital content worldwide, reports that its year-to-date numbers for cable VOD are up 81 percent from 2011, and digital VOD has a year-over-year increase of 73 percent. "Interestingly, the films that have done great this year on cable are dramas that seem to skew slightly older and female," says Susan Margolin, co-president of NewVideo. "This contrasts with digital VOD, where comedy, horror and action tend to fare better. Also, documentaries in general haven't performed as well as we hoped on cable, but have been among our most successful titles in the digital space."

Netflix is one of the first SVOD companies and, to date, the largest. This past June, Netflix streamed more than 1 billion hours of content, according to CEO Reed Hastings. The market experienced a five-fold spike in subscription streaming, which TheWrap attributes to Netflix's shift away from DVDs. Spending on subscription streaming hit a high of $548.6 million in the first half of 2012. That's up from $85 million in the first of 2011. Also, Nielsen reported an overall subscription revenue hike for the first six months of 2012, up 18.6 percent at $896.6 million from last year.

For now, numbers aren't readily available from other major VOD players like Hulu, Vudu or AmazonPrime. But it's obvious that VOD can certainly be a profitable route for a film, especially with companies like SnagFilms, NewVideo, Kino Lorber and Gravitas blazing the trail and figuring out the rules so filmmakers can pay attention to other important parts of distribution.

"For us, it's always about bringing great films to bigger audiences," notes SnagFilms CEO Rick Allen. "So we're releasing films theatrically and we're selling to TV, but we're focusing on digital platforms, both pay and ad-supported. We think that VOD distribution is a really important part of any filmmaker's distribution strategy, and we think it will become more so in the near and far future."

 

Valentina I. Valentini is a freelance journalist and producer based in Los Angeles. She contributes to ICG Magazine, British Cinematographer, IndieWire.com, HDVideoPro and more.

 

SIDEBAR:

 

Jon Reiss' Top Ten Tips for Signing a Distribution Deal

 

1.      Be very careful how your deal might affect territories beyond the United States.

2.      Don't give digital rights to entities that cannot monetize them.

3.      Be careful about signing "all rights" deals—make sure the foreign sales agent doesn't give away digital rights just because he doesn't know how to monetize them, because digital rights in foreign countries are actually starting to become valuable now.

4.      Don't give exclusivity to digital rights away, unless there's an advance paid for them with which you're comfortable.

5.      Think carefully about how you window your rights: Who gets what, and when?

6.      Make your own rights grid and track it for yourself; no one will do this for you.

7.     Unless you're super savvy, and even if you are, get someone who knows this arena well to look over your agreements, to make sure you are protecting yourself and the revenue stream of your film. This might not be a lawyer; it might be a knowledgeable consultant who works in tandem with a lawyer.

8.      Don't forget that there are direct distribution models.

9.     Give a certain (short) window to a foreign sales agent to try to sell digital rights, but then have those rights revert back to you so that you can monetize those rights either directly or through a digital specialist/aggregator.

10.  It's relatively easy to get your film up on a digital platform, but it's difficult to get people to watch your film, even if it's for free. You need to understand that it's not enough to get your film up; it's more important to create awareness.

 

—Jon Reiss, from The PMD Handbook: Everything You Need to Know About the Producer of Marketing and Distribution, coming in 2013.

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