Finance drama's hybrid model is fest's gold standard

Kickstarter stretches Sundancers’ budgets

Thanks in part to “Margin Call’s” boffo day-and-date digital release last fall, this could be the year that Sundance dealmakers begin to see on-demand distribution not just as an add-on or consolation prize, but an essential piece of the indie puzzle.

At last year’s fest, “Margin Call” director J.C. Chandor and his backers faced the kind of dilemma any indie filmmaker would love to have: three buyers, all with varying offers. One secured the most upfront cash. Another promised the heftiest P&A spend. But neither had the unique video-on-demand package that Lions-gate and Roadside Attractions brought to the table.

It took some convincing, says Chandor, who eventually came to trust the idea that an all-platforms-at-once release would reach the largest audience — and probably make the most money.

“I knew going to VOD has traditionally been a sign of dumping a film,” Chandor says, “but the practical side of me eventually bought in.”

What Chandor & Co. bought into became arguably the most successful demonstration of a theatrical-and-VOD hybrid release to ever come out of Sundance.

VOD and online streaming deals have had value in the festival marketplace for at least a decade, but only in the past two to three years have revenue returns proven large enough to seriously impact daily dealmaking at a Sundance-sized market, says Hal Sadoff, head of international and independent film for ICM, which is representing a handful of titles in Park City this year, including “Predisposed” and “Safety Not Guaranteed.”

“Right now everyone’s still just trying it out to see what works,” Sadoff says. “The world will really change when things like Apple TV come online and you have more penetration into homes.”

Indeed, digital distribution is coming on so fast that an industry-standard structure for such pacts has yet to solidify. Digital pacts can be — and often are — struck separately from theatrical deals, or packaged in an all-media buy, with both front-end coin and backend participation. Very generally speaking, digital distributors negotiate for 20%-30% of all receipts; minus any fees or sub-fees, the rest goes back to the licensor, bizzers tell Variety — as opposed to the rougly 50% that theatrical exhibitors traditionally pocket.

But the spectrum of digital deal structures is wide, with each seller grappling for whichever format will provide the best return. That’s not always an easy call to make.

“It’s still the Wild West,” says Logan Mulvey, CEO of on-demand distrib GoDigital, which earlier this month acquired key competitor Might Entertainment and plans to be active at Sundance. “People are having a hard time quantifying what’s going to do well … for the most part, these deals are a shot in the dark.”

Still, bizzers are especially bullish about the future of digital. Some say that once the market is fully developed, it will be a major boon for indies — more so than homevid ever was. That’s because the DVD format was never friendly to small-budget films with limited marketing and penetration, which severely limited their exposure to so-called “discovery” auds. With VOD and digital, which require very little upfront risk and no physical overhead, exposure to viewers surfing for something new to watch increases exponentially.

Revenues are likely to do so as well.

“When I started this business three or four years ago, and I would make $400-$500 on a title for broadband distribution, it didn’t seem sustainable at all,” Mulvey says. “But I have and will continue to bet the farm on this. It’s happening.”

He adds that nowadays, if films begin routinely taking in six-figure returns for digital streams, it would “enable people to get back to the place where they can start making independent films again.”

More cause for optimism: The massive foreign markets that have boosted box office in recent years lie virtually untapped in the digital space. The U.S. still dominates in the on-demand arena, with international markets just beginning to come online.

As the market grows, so do the players. At the moment, there are three tiers of distributors operating in the digital space:

• companies like GoDigital, Gravitas and SnagFilms, which operate VOD and digital only while occasionally outsourcing theatrical releases;

•a group that applies digital distribution to TV, DVD and other homevid rollouts, such as Phase 4 Films and Gaiam;

•theatrical distributors who use digital platforms to enhance revenues, such as IFC and Magnolia.

Traditional theatrical specialty distribs are getting into the game, too: The Weinstein Co., for instance, late last year announced a new label to specifically bring specialty pics to digital platforms. With so many players in the space, sellers who see theatrical and on-demand potential for their fare will be on the lookout in Park City for a “Margin Call”-type deal that bizzers now routinely reference as the poster child for a day-and-date multiplatform release.

And for good reason. The Wall Street thriller, produced at just north of $3 million, bowed day-and-date on VOD and in 56 theaters last October, and was eventually expanded to 199 theaters, taking a healthy $5.2 million in total domestic box office. On the VOD side, the film took in an estimated $4 million-$5 million, and much of that came in the first weekend, when travelers at business hotels boosted boffo business for the fresh title.

“That’s an audience that never would’ve gone to see it in a movie theater,” Chandor says.

At a time when theatrical attendance is at a 16-year low and homevid sales are plunging off a cliff, filmmakers — particularly younger, digitally native up-and-comers — are less inclined to have qualms about an online-only release.

“I’ve had a bunch of conversations about this with a range of filmmakers, some of whom have had theatrical distribution in (several) marketplaces, and maybe played on TV, but never reached their maximum audience,” says SnagFilms chief exec Rick Allen. “Digital ends up being the way to do that. And generationally, the more recent entrants into that medium have sparked to it easier.”

The market is already robust enough now to bring considerably more action to the indie space at a time when Sundance is flush with product still seeking distribution; that should make for a busy week in Park City. All that, despite the fact that so many of the details — particluarly, the window in which titles are released on what platform — are still being worked out on the fly.

“My view is that over time, it will become more normalized,” Sadoff says, “and those windows will be settled. But right now everyone’s experimenting on a case-by-case basis. In most instances, the best distribution strategy just depends on the particular film.”

At least in the case of “Margin Call,” it seems that Lionsgate and Roadside hit the center of the target.

“All these things they said would happen,” Chandor says, “happened.”

Filed Under:

Follow @Variety on Twitter for breaking news, reviews and more