Homevideo decline leaves room for new market

The video-on-demand business, which barely registered as a revenue stream three years ago, has almost overnight changed the indie distribution business.

Viewed as a whole, VOD revenues can be underwhelming and deceiving, expected to near $2 billion across digital services such as iTunes, cable and other outlets this year — that’s just a sliver of the $22.5 billion expected from DVD and Blu-ray, projects Adams Media Research.

Yet for a growing number of indie films, VOD has become a crucial revenue source, accounting for as much as 60% of revs for some movies and returning seven-figure checks for the highest-profile indies.

“VOD does make up for some of the DVD sell-through decline for smaller indie movies,” says Oscilloscope’s David Fenkel, who sent “Wendy and Lucy” out on VOD in May via the company’s deal with Warner Bros. Digital. But he’s also quick to note that sell-through for some indie titles was never brisk previously.

One of the breakout stars is Magnolia Pictures’ “Two Lovers,” which debuted in theaters and on VOD simultaneously. The film is on track to gross well into seven figures, says Magnolia president Eamonn Bowles.

Unlike the theatrical and DVD business, where revenue estimates are touted in a matter of hours after a film’s release, VOD sales figures are still guarded like state secrets. Often, even the distrib doesn’t know the numbers until several months after releases, when the payments start rolling in.

Debuting a film on VOD can potentially put it in more than 50 million living rooms where viewers can watch not just through Comcast and other cable and satellite outlets, but through iPods and Xbox 360 game consoles.

VOD has become a new source of income for virtually no additional cost. There are no theatrical prints to deliver or discs to press. And it comes with free advertising, thanks to the trailers cable operators run to promo available VOD titles.

VOD providers, eager to lure customers with content they can’t get in many other places, heavily promote VOD debuts through TV ads and callouts on the main VOD channel.

“The cable operators run a ton of free promotion and actual TV advertising that we would never be able to afford for films of this scale,” Bowles says.

IFC, another indie distrib regularly releasing films in the theatrical window and also on VOD, is seeing the same healthy returns.

“I Hate Valentine’s Day” is on track to be the company’s top VOD performer, having already generated an estimated $1.5 million in overall revenues, just surpassing biopic “Che,” says IFC topper Jonathan Sehring.

Those are the standouts, but even for other films, VOD revenues can be just as significant, though smaller. Gravitas Ventures, which distributes 250 indie pics a year on VOD, tells its partners that high-five and low-six figures is a more realistic expectation if they get picked up by the biggest VOD providers, such as cabler Comcast.

Key to broad VOD distribution, and bigger revenues, is timing the VOD rollout with or before the DVD release.

Films released day and date with DVD tend to sell 50% better on VOD than films released afterward, says David Asch, executive VP of VOD distributor In Demand.

They also generate higher profits because companies can charge more — Magnolia charges $9.99 and up, IFC $7.99 — both premiums over the typical $3.99 for VOD films released in the DVD window.

“It’s a significant source of revenue. Probably more significant are the economics of it,” says Sehring.

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