Online distrib'n not enough to make up for declining revs

According to the “Long Tail” way of viewing things, online DVD distribution platforms like Netflix, Amazon and CustomFlix are revolutionizing the business for independent movie producers and suppliers, using their vast inventories to give idiosyncratic, niche titles a fighting chance against the studio hits.

But for most indies trying to make a living in the here and now, Long Tail is a Hollywood theory that will probably wag for them down the road.

“Our Netflix business is definitely growing,” says Bill Bromiley, president of First Look Home Entertainment, which premiered 2005 Sundance Grand Jury Prize winner “Forty Shades of Blue” exclusively through the online rental service. “And we probably do as much online business with as anybody else does.” But he concedes online distribution of DVD “is still not a big enough piece of business to make up for declining revenues in other channels.”

Of course, the indie spectrum covers a rather vast array of companies and programming, with some specialty suppliers noting a marked revenue increase already through online disc renters and retailers. However, for most of the sector, business remains as usual — that is, trying to eke out a profit on direct-to-DVD genre titles in a degraded brick-and-mortar rental market and struggling to find shelf space in an ever-more-crowded retail sell-through environment.

“It’s tricky getting shelf space for indie product, even if you have a modest theatrical release,” notes Paul Gardner, president of Union Station Media. “Our experience is that price for the retailer and marketing seem to be the key ingredients for success right now. It helps if you have strong programming and marketing hooks, but it’s still a challenge. It’s increasingly difficult to break through the clutter.”

Union Station bowed Maria Bello starrer “The Sisters” June 13, and “Netflix is having huge success with that movie,” Gardner notes. “They took a significant number of DVDs for that title, and it came in quite strong for re-order.” All told, however, revenue from this Netflix release will account for only a “single-digit” percentage of the film’s overall homevid take.

And in that regard, indies trying to reach consumers in those traditional realms face the same conundrums that most traditional media grapple with these days — fragmented audiences and crowded channels. Talk to most indies these days about production and acquisition, and the term “more selective” comes up a lot.

“In the old days, we’d sell a movie to Blockbuster, make our $10 a unit, and we’d be done,” recalls Bromiley of the days before revenue sharing — a model that made suppliers accountable for the title’s rental performance.

“With revenue sharing, it made you more carefully consider all sorts of things at the acquisition stage: Is the customer going to buy it? What kind packaging should it have? How many units should we put in stores?”

Over time, Bromiley says homevid consumers have gotten more picky. “You used to be able to stick anything on the shelf and it would rent. Now you have to be a lot more careful. For example, we know family dramas aren’t working. In the past, we’d put any genre out there and it would work.”

“You have to work a lot harder and be smarter — we’re definitely more selective in what we acquire,” Gardner adds.

Homevid’s migration to retail sell-through has further complicated the business equation for indies, which now have to pick films that will work in two very different channels. “Now before we acquire a title, we have to make sure it’s not only going to be a good rental, but it also has to have a future in the sell-through market for us,” says Larry Brahms, president of MTI Home Video, who says his company’s business is about 60% rev share and 40% sell-through at this point.

All of this leads indie producers and distribs to hope that new channels develop sooner rather than later. And to an extent, that’s happening. For example, as part of an output deal with Warner Home Video, Lightyear Entertainment prexy and CEO Arnie Holland says his company’s films typically enjoy a cable-based video-on-demand window. These windows can generate well into six figures, he says. “It’s really generating a lot of money for us right now, and it’s growing with more and more people getting (access to) digital cable.”

Then there’s Netflix. One indie exec noting that his company recently sold 30-day exclusive rights to one of its films for $60,000 — not enough for the company to live on, but “a good chunk of money for us,” he notes.

There are, however some indies — distributors of music DVDs, for example — who say they are living on this new-media revenue today.

According to Steve Sterling, senior VP of programming and production for Live Nation, the concert-promotion giant’s disc division is generating notable sales not only through big Net channels like Netflix — the online rental service recently picked up 200 copies of a recent Korn disc from Live Nation — but also the Web sites of big brick-and-mortar retail outlets.

Live Nation is also getting a boost from alternative points of sale, including radio station sites. “This year, we will see real revenue from those ways of selling product,” Sterling says. “You still won’t see people say, “My business is up double-digit percentages because of them,” but the promise of real revenue is upon us this year.”

For his part, Dennis Hedlund, president and founder of Kultur — which distributes opera, ballet and classical music performances on DVD — says that his company is proving the Long Tail theory here and now. In fact, more than 40% of Kultur’s sales are generated online these days, he says. “What’s been unique for us is that Best Buy wouldn’t have shelf space for 20 of our titles in a store, but they have space for 50 or 60 on their Web site.”

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