New York– Over the last decade, gay and lesbian film festivals have struggled with shrinking foundation funds and competition from cable, VOD and online film sites, which, despite today’s record number of LGBT fests, makes their target audience harder to attract. Now they could be facing a bigger challenge: an increasing demand for rental fees from distributors and filmmakers.

As LGBT films find their bigscreen runs shortened and ancillary revenues dropping, more distribs and producers are asking for a share of festival ticket sales, a move that’s turning the LGBT fest circuit into a main source of revenue for a growing number of films.

“There’s this pre-existing model where films go to festivals to get exposure, reviews and a distributor, then a theatrical run, then DVD and foreign sales where the money’s recouped,” says Brenda Webb, director and founder Chicago’s 30-year-old Reeling festival, the second-longest running LGBT fest. “As there’s been a kind of collapse in the theatrical market, and the time between production and DVD release has (shortened), festivals are becoming the place (some films) recoup costs — essentially becoming their theatrical market.”

There are now so many gay and lesbian festivals around the world, and a limited supply of quality films for them, pics are getting picked up by distributors earlier, and there’s increasing pressure on festivals to pay rental fees. “It’s become difficult to recoup costs from DVDs, so festivals are now seen as the places able to pay,” she says.

Wieland Speck, topper of the Berlinale Panorama and founder of its Teddy Awards, feels this is a necessary evolution. “Many films will never see a theatrical run, so one has to think about how the festival circuit has to develop in order to feed something back to the producers,” he says. “I think small festivals only have a chance when they understand this, and start to also invest in bringing an audience together, not just showing films for their own sake.”

An exact count of LGBT fests is hard to tally, especially with new ones cropping up and disappearing all the time. Several sources put the number at more than 200. As a result, the path travelled by many gay-themed films parallels a limited rollout, often bringing valuable exposure, both from reviews and the target audience.

Not all agree with Webb’s assessment. Frameline exec director K.C. Price says he hasn’t seen a significant increase in his rental budget over the past decade, but does note an increase in rental requests from European distribs, likely due to the fact that both queer and foreign-language films have taken equally big hits at the box office, and Euro fests frequently pay rentals.

Outfest exec director Kirsten Schaffer says that film festivals can sometimes afford to pay small rental fees. “But relying on that as a distribution mechanism won’t work for most movies except really low-budget ones, because festivals don’t make enough money to pay a significant fee,” she adds.

The increase in rental requests isn’t exactly good news for nonprofit LGBT fests, already hit hard by dwindling financial support and apathetic younger audiences more likely to head to VOD or online for gay content.

NewFest exec director Lesli Klainberg has felt a pinch in fundraising. Moving this year’s edition from June to July, however, allowed NewFest to be promoted at New York’s annual Pride parade for the first time, which helped ticket sales stay robust.

Rental requests are not exclusive to special-interest film festivals. “Although most festivals decry the practice of paying licensing fees to distributors for U.S. and foreign films, the practice does happen, particularly with smaller festivals that don’t have the clout to negotiate them,” says Laurie B. Kirby, executive director of the Intl. Film Festival Summit, a conference for film festival organizers. “The practice is widespread among European distributors because those films are often unprofitable, and they need to recoup from American festivals hungry for their product.”

Rental requests arrive amid some distribs’ concerns that a high-profile fest debut will cut into ticket sales among a film’s core gay urban audience. Some are taking creative measures for mutually satisfying solutions, such as agreeing to play certain features in smaller auditoriums.

When a filmmaker recently faced the choice of having an acclaimed gay film play NewFest or take a featured spot at a non-LGBT fest around the same time, Klainberg agreed to put it in her smaller theater to avoid siphoning off too much of its initial LGBT Gotham audience.

“Our argument is that we are the tastemakers in the LGBT community in New York,” says Klainberg. “In our experience, (festgoers) not only go to the Film Forum again to see the movie, they bring two people with them.”

Promotion is another invaluable component fests offer. NewFest does email blasts and Facebook posts tied to a film’s release, and prints 100,000 film guides that get distributed all over Los Angeles. If only 600 people see the movie at the fest, many more will be somewhat familiar with the title when it comes on VOD.

And even if rental fees aren’t an option, Webb notes a willingness among fests to cover filmmakers’ travel, through sponsorship bartering, when possible.

A repeated concern voiced by fest directors is the future of their audience.

“What we’re finding is the importance of gay and lesbian cinema to a certain demographic looking for positive reinforcement — a post-40 crowd,” says Philadelphia QFest artistic director Ray Murray. “Every year it seems to be getting older, and we’re not bringing in a lot of young people.”

He and others are making efforts to turn this around — Outfest, for one, is using an online campaign to get younger people interested in feature films, Schaffer says.

There is some good news on the horizon. After years dominated by schlocky gay genre features targeted at younger gay cable network audiences, programmers say LGBT films seem to be getting better in recent years, with this past year especially good for U.S.-produced fare. (QFest’s Murray says the generally higher quality of overseas titles is a direct result of government film funding largely unavailable here.)

And despite the refrain that LGBT film fests are less important in an age when TV has more gay characters and audiences can commune online, Schaffer and many others strongly disagree.

“No matter how much the media has changed, or that gay marriage is legal in New York for the moment, there are still so many people in this country who discriminate against the LGBT community,” she says. “There’s still so much work to be done, so in my mind, there’s still a need and place for LGBT film festivals.”