DVDs open revenue menu

DEJ, major studios' B product drives video revs down

Increasingly driven by hit theatricals and crowded by bigger competitors, the domestic homevideo rental industry has provided little offset for indie film producers and distribs from the recent harsh realities of tough international markets and increasing production cost.

However, the emergence of the DVD format has provided some important new revenue streams to ease the pain.

“In terms of the U.S., there’s no question that the driver is video followed by cable,” says David Sobieraj, president of domestic video and television for Los Angeles-based Nu Image, which produces 15 action films a year, filmed primarily abroad in places like Eastern Europe and aimed mostly at foreign territories. This includes the upcoming “Derailed,” starring Jean-Claude Van Damme, to be released directly into the U.S. video market by Artisan Home Entertainment.

The problem for many smaller indie distributors — and the producers they support — has been that they’ve been crowded out of shelf space in the domestic VHS rental market. The biggest reason, some say, is the emergence of DEJ Prods., the veritable 10,000-pound gorilla film acquisition and distribution arm of movie rental giant Blockbuster.

With DEJ releasing around 100 rental titles a year through third-party distributors such as Artisan and Lions Gate Home Entertainment, smaller independent distributors say there’s little room in the market for their films — especially at the biggest rental chain, Blockbuster.

“One title I was involved with several years ago did $2 million in rentals,” says Gregory Hatanaka, head of distribution for Venice, Calif.-based Pathfinder Home Entertainment, which produces and distributes about four genre titles a year in addition to acquiring and releasing select films on DVD. “Back when you could get into Blockbuster, you could make that kind of money. You couldn’t do that today.”

B-product invasion

“This is a significant issue because not only do you have DEJ to contend with, the major studios are also carrying a lot more B product,” adds Dwight Krizman, chief operating officer of Framework Entertainment Group, which releases one film a month, including the recent sci-fi comedy “G-Men,” starring Robert Goulet and William Forsythe. “It’s much more difficult to get our product into the marketplace because the pipeline for B titles is too crowded.”

However, while there might be less opportunity in the rental market for them, indie producers and distributors, particularly the larger ones, have benefited from the explosive emergence of the DVD format — and a resulting new home entertainment paradigm in which consumers buy rather than rent.

“Prior to DVD, the sell-through market for home entertainment product certainly was not as large, and it’s safe to say we didn’t have the same quality of product we do now,” says Ron Schwartz, executive veep, North American home entertainment, Lions Gate, which recently released its most successful homevideo title, Academy Award-winning “Monster’s Ball.”

“The DVD medium is particularly well suited for arthouse product, and the arthouse audience has disproportionately courted DVD from the beginning,” says Steve Beeks, president, Artisan Home Entertainment.

He notes that the format’s sound and image quality, and its ability to store extras such as commentaries and making-of documentaries appeal to more sophisticated independent film audiences.

“And because of that, DVD has enhanced the revenue you can derive from an arthouse film,” Beeks adds, explaining the studio has earned up to 40% of its revenue on certain releases through DVD distribution alone.

Artisan is unique among independents in that it has a large film library. And just like the majors, DVD has created an entirely new way for Artisan to mint money, creating multidisc, feature-packed collector’s editions for properties it already owns such as “Terminator 2,” “Reservoir Dogs” and the soon-to-be-released “Glengarry Glen Ross.”

Smaller independents without extensive libraries also are supporting their production operations by acquiring and releasing niche-audience properties on DVD.

Pathfinder, for example, will release a loaded and remastered “ultimate edition” of the Chinese martial-arts classic “Master of the Flying Guillotine” Aug. 27 for $24.98. “It will help boost some cash into the company,” explains Hatanaka. “We still rely heavily on international investment to make our movies, but this makes it easier.”

Meanwhile, according to Nu Image’s Sobieraj, the development of the DVD sell-through market also provides a back-end to the domestic VHS rental market. Nu Image can now license its action films for a finite rental window to a distributor such as Artisan or DEJ, then repackage them into multidisc multimovie DVD sets later on for the sell-through market.

“Obviously, like everyone else, we think the future for us is DVD,” he says.

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