But still face challenging online marketing gap

Of the 100-some features questing for a distributor at January’s Sundance Film Festival, only a handful found the holy grail: worldwide theatrical distribution with an advance minimum guarantee and back-end participation.

With an unforgiving and glutted marketplace for indie films, where the cost of prints and ads to keep a movie in theaters is punitive for everyone, there’s no appetite for risk-taking.

The key question is, when will an alternative distribution outlet for indie films emerge — an outlet that can interest enough viewers to bring in meaningful returns?

The film industry is rife with eager alternative distributors pitching their wares — but making money isn’t usually part of the equation.

“The long-range outlook for specialty film is to move more to home markets. But the marketing challenge is enormous,” says Netflix’s Ted Sarandos.

Two of the hottest pre-fest titles, 2929 Entertainment’s $20 million Robert De Niro comedy “What Just Happened?” and Groundswell’s Michael Chabon adaptation “The Mysteries of Pittsburgh” were among the many that remained unsold at the end of Sundance. But while the name titles will eventually find homes, the smaller fish could easily end up dead in the water.

Once filmmakers make the mental leap that Hollywood isn’t going to offer them a $2 million minimum guarantee, they have plenty of other distribution options, from cable and self-distribution to the Internet. The problem lies in getting the word out to sufficient viewers to convince them to download, stream or pay-per-view the pic.

“We’re in the transitional post-major studio pre-Internet era,” says Emerging Pictures CEO Ira Deutchman. “Models will be clear in the future. We’re still heading toward Web 2.0.”

Filmmakers need to get past the romance of a theatrical release, says Cinetic Media’s John Sloss. “People are so disproportionately preoccupied with getting their movies released in theaters that they’re not interested in alternatives. You make more money and get more exposure and promotion on HBO.”

Sloss says Verizon and AT&T are starting to offer $100,000 for 60-day mobile phone exclusives on indie films. “Netflix, Withoutabox and everybody else are trying to build a community. In the future, it will be about loyalty and community.”

One surprisingly aggressive player at Sundance this year was online DVD renter Netflix, which entered into the bidding for several key films through its Red Envelope Entertainment subsidiary, often in partnership with a theatrical distributor.

At fest’s end, the company had acquired domestic homevid and streaming rights to the soccer doc “Kicking It” in partnership with cabler ESPN and Liberation Entertainment, and is still negotiating for several more films.

Netflix has partnered with other theatrical distribs such as Roadside Attractions (Sundance 2005 entry “The Puffy Chair”), Magnolia Pictures (“No End in Sight”) and IFC Films (Cannes Palme d’Or winner “4 Months, 3 Weeks and 2 Days”) as well as online distrib B-Side to stream films on its Watch Now site.

After a minimal release of the credit-card doc “Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders,” 65,000 people rented the DVD in its first week on Netflix, and 35,000 streamed it on their computers.

IFC Films’ First Take banner offers another model: day-and-date video-on-demand and pay-per-view through its cable and DirecTV partners, with an initial run at the IFC Center in Manhattan. Opening at the IFC Center means film reviews can help brand the title, since online-only releases aren’t likely to be reviewed in mainstream media. Terry Kinney’s 2008 Sundance drama “Diminished Capacity,” an HD two-hander starring Matthew Broderick and Alan Alda, will take that route.

Both Amazon and Netflix have the ability to “recommend” similar movies to their customers, even if the titles are utterly unknown, on the basis of having rated such genres as sports docs, Bollywood musicals or Jane Austen romances. “We can get a film to perform as if it did $1 million at the box office,” says Netflix chief content officer Sarandos, “without spending the marketing dollars to get that. Instead of a distributor recouping its dollars, that money will flow back to the filmmaker. We’re figuring out more efficient ways to get to the audience, with DVDs, streaming to laptop and PC, and eventually direct to the TV with a multidevice strategy.”

Amazon’s online self-distributor CreateSpace has already yielded a huge breakthrough seller in Matt Gannon & Michael Sarner’s sports DVD “In the Crease,” which has generated $500,000 in gross sales so far, according to Gannon. The filmmakers held on to all rights to the hockey film, which made its money back in 40 days through its rev split with Amazon. (Most Amazon filmmakers settle for about 60% of the DVD revenues and 50% of downloads.)

“About 80% of that has been through our relationship with CreateSpace, the rest through brick-and-mortar retail deals and other online channels that we’ve secured ourselves, including a sales partnership with the National Hockey League,” Gannon says.

Amazon is expected to make more inroads into the indie space, partly through its subsidiary IMDb and its acquisition of self-distribution enabler Withoutabox, which has 150,000 filmmaker members from 200 countries. “It raises an opportunity in an interesting area that we’re going to be thinking about,” Amazon Unbox exec Roy Price says.

Several Internet distribs are piggybacking on film festivals as a source of talent and content: B-Side, based in Austin, Texas; L.A.’s Withoutabox.com and Cinequest, a San Jose film fest with a 1 ½ year-old side business distributing films on the Internet that’s seeing exponential growth with competitive revenue splits.

“We try to find films missed by distributors,” says B-Side founder and CEO Chris Hyams (son of director Peter Hyams). “Tons slip through the cracks.”

These companies often work in tandem with DVD and download sellers such as Jaman, IndiePix, and Amazon. DVD-quality downloads are widely available via iKlipz, Miro, BitTorrent and other open sources; the technology is there. When easy access to conventional TVs arrives, with their larger screens and couch-based viewing, downloads should take off via Apple TV, Microsoft’s Xbox and other set-top boxes like TiVo.

 “A year or two ago, selling downloads was like selling malaria,” says Gaurav Dhillon, founder and CEO of Jaman, who buys non-exclusive download rights for a modest upfront fee and shares revenue with filmmakers, many of them from foreign countries. The films that earn the best rankings from consumers move into more prominent placement on the site. But even successful filmmakers are collecting shares in the tens of thousands. And shorts far outsell longform entertainment. The download market “is going to move faster than expected this year,” Dhillon predicts.

 Even established auteurs like Edward Burns and John Sayles, disdaining unsatisfactory deal terms from conventional theatrical distribs after fest launches, have taken matters into their own hands. Burns released “Purple Violets” exclusively through iTunes for four weeks at $14.99 a pop in January, hoping to spur DVD sales down the line. At January’s MacWorld, Apple CEO Steve Jobs claimed that iTunes has sold 7 million $9.99 feature downloads so far.

But most were branded titles backed by studio ad campaigns. Even with a recognizable mug and a core following, Burns faced a sizable marketing gap for what Netflix’s Sarandos calls a “cold start” on the Internet.

While many expect the studio specialty divisions to jump into this arena, they are still wedded to the old-fashioned — and still lucrative — pay TV output model. “The major studios are tied down by pre-existing HBO, Showtime and Starz pay-TV deals,” Sarandos says. “The studio specialty divisions may become the studio digital divisions, first with films that are not otherwise encumbered, black-and-white films, docs and foreign language films.”

Netflix streamed the Spanish-language “Pan’s Labyrinth,” black-and-white “Letters From Iwo Jima” and “The Good German” for 90 days post-DVD, up to the Pay TV window. All three films eventually sold non-exclusively to pay TV anyway, concurrent with Netflix’s window. “The sky didn’t fall,” Sarandos says. “The exclusivity process is breaking down. Consumers like the subscription model.”

For now, while enterprising DIY filmmakers like “Head Trauma’s” Lance Weiler are innovatively experimenting with viral online marketing to build fan bases and customers, most Internet downloads are earning filmmakers tens of thousands of dollars, not hundreds of thousands. Which means that this movement will continue to build from the bottom up with micro-indies, not from the top down with real studio investment.

While many online marketing experiments are afoot, during this transition period, we are seeing a throwback to the old roadshow exhibition pattern as filmmakers of all stripes take to the road with a film canister or DVD under their arm, looking to grab local publicity to drive filmgoers to a local theater. More digital projectors make that possible.

A movie with a niche audience or hot-button topic can score this way. When Chris Burgard’s “Border,” a scathing expose of U.S./Mexico border crossings, won prizes at small local fests around the country but failed to land a home, the California filmmaker booked screenings himself, often in tandem with local conservative radio talkshows. Some exhibitors told him that his controversial film outperformed conventional fare. Burgard connected with a DVD manufacturer and set up his own Bordermovie.com website to sell DVDs for $24.94 apiece. Why so much? “I’m trying to get my money back,” Burgard says.

So far, a large market for selling movies online has not developed. Tiny movies with microbudgets are selling online, but while Amazon, Netflix and others are expending considerable effort in building these marketplaces, this is a nascent business. “The pure online approach is not generating returns,” says B-Side’s Hyams, who has recently partnered with IFC to air five new B-Side fest pickups on “Choice Indies” each month, promoted by 30-second spots both on IFC and online. SXSW discovery “Before the Music Dies” debuts in February.

“Combining different approaches both online and offline allows us to identify things that other people are missing and get them in front of audiences,” says Hyams, who also books and invites B-side members to local screenings — more than 300 in 2007 — and sells both $7.99 high-res downloads and $12.99 DVDs, such as “Four-Eyed Monsters,” on the site.

B-Side promotes eco-horror comedy “Blood Car” on the site, but the filmmaker still owns the DVD rights and a click to “buy now” goes to Bloodcar.com/store.

But it’s probably from the genre community, already packed with fans with their fingers on the BitTorrent button, that the first online feature hit will come. Horror pics like the aforementioned “Blood Car” and fright pic “Catacombs,” with a built-in marketing community on fan websites, are seeing more downloads than are sensitive dramas. The question is when the “Blair Witch” of Internet-distributed films will arrive.

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