May 26, 2012

Distribution in the Year 2012

by David Albert Pierce, Esq. | Published January 26, 2012

Tower Heist director Brett Ratner

Distribution is the sole source by which film revenue is earned, but recent years have seen some radical changes in how films are distributed. Here are some of the most recent changes to affect the world of distribution:

The Advent of Digital Theatrical Distribution
In conjunction with theater chains, major U.S. studios have spent $660 million to retrofit theaters so that films can be shown via digital distribution, rather than with traditional film projectors. Once this conversion process is complete nation-wide, the result will be that traditional Prints & Advertising (P&A) costs will become a thing of the past. The “prints” part refers to the 35mm film prints, stored in heavy canisters, which require secure transport to every theater at which a film is shown. The costs associated with creating prints and delivering them to each individual theater can be staggering. But with the advent of digital theatrical distribution, distributor costs for prints are reduced from hundreds of thousands for even the smallest independent film run (larger runs cost millions) to a mere fixed $850 “Virtual Print Fee,” to be paid by the theater for each print it shows.

Traditional theatrical distribution has always been both a blessing and a curse for independent moviemakers, because while everyone enjoys the prestige and glory of a theatrical distribution, the associated P&A costs all too often place films in the red. Digital theatrical distribution, on the other hand, will substantially eliminate those traditional print costs, meaning that theaters may become more willing to take a chance on independent films. If the film in question turns out to be a bomb, they can just switch a button and replace it with something else. But if the film becomes a surprise hit, with one flick of a switch it can show on multiple screens. Furthermore, theaters will have greater flexibility: They can screen a major motion picture at 5:00, 7:00 and 9:00, followed by an indie film at 11:00. Pessimists worry that the rise of digital theaters could mean death for mom and pop theaters unable to afford the digital upgrades, but only time will tell how things play out. Replacement of traditional 35mm prints may have as great an effect on the profitability of independent films as did the replacement of traditional negative cutting with digital, non-linear editing.

DVDs: A Dying Form Of Distribution
The domestic DVD market has declined by 20% every year since 2006. Due to widespread piracy, foreign DVD markets no longer exist, and the rise of streaming services like Netflix and Amazon Instant Video have caused domestic markets to dwindle. The popularity of Blu-ray discs has grown, particularly among those viewers who want to be able to own collectible editions of films, but that one rise in sales cannot counteract the constant downward slide of the DVD market. Of course, for those independent moviemakers who desire to distribute their films via DVD, this means that it has never been cheaper or easier to arrange for replications and sales to occur either at in-person venues or via online marketplaces like Amazon.com.

Netflix: A New Paradigm For Delivery
The original Netflix delivery system—shipping DVDs through the mail—costs Netflix eighty cents per disc shipped. The company’s streaming video service, on the other hand, costs them a mere five cents in overhead per film streamed. Whether Netflix’s increased profits will result in more money being paid out to independent moviemakers is yet to be seen.

Another interesting development in regards to Netflix is its recent announcement that it will air exclusive original programming, beginning with new episodes of “Arrested Development.” This may be a sign of things yet to come, with Netflix becoming more like HBO or Showtime. Netflix is a prime example of the current trend of delivery formats becoming more blurred. The company that took down Blockbuster by eliminating the need to drive to the video store may now rival HBO, with their streaming videos and original television programming able to be viewed on consumer’s televisions and computers.