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Video streamers are poaching independent films that previously were destined for movie screens, putting the tug-of-war over indie product in a spotlight. Exhibitors are stretching to keep premier specialty films attached to the silver screen and at the same time indie distributors struggle to cover sizeable marketing costs, which is a longstanding obstacle to cinema runs.

Independent films “are an important art form and very important to the longevity of our business,” says Marcus Theatres circuit chief Rolando Rodriguez, who is also chairman of the National Assn. of Theatre Owners (NATO). They fill many verticals, such as prestige films, enabling exhibition to continue “to cater to the broad general audience.”

NATO will hold CinemaCon, its big huddle, Aug. 23-26 at Caesars Palace in Las Vegas.

The marketing-cost hurdle was supposed to be erased by shifting to digital media, which is less expensive than advertising buys in traditional media. But the hoped-for “digital discount” is only slowly materializing, say executives.

“Because of the saturation of digital media, we haven’t a come up yet with a holistic way to connect the product with the consumer,” Rodriguez says. “I think that’s what the industry needs to work for.”

Social-media interactions, promotions piggybacking on digital platforms, email campaigns, online contests and seeding cyberspace with alluring film content are inexpensive compared to paid-advertising campaigns in traditional media. The traditional media campaigns run into the millions of dollars that rely on national TV commercials, which are pricey.

High on everyone’s cost-cutting list is leveraging databases in digital media that identify consumers who are best prospects for films in various genres. Exhibitors know more than ever about their ticket buyers’ preferences on an individualized basis for those enrolled in theater loyalty programs, which are leveraged for localized digital marketing. Film distributors assemble their own geographically broader moviegoer lists. It’s still early days, but executives say that a federal crackdown over consumer privacy online will impose limits on data collected from individual consumers.

Oscar rules governing qualifying theatrical release for the documentary category reflect the slowly shifting landscape. Rules now simply say marketing must be “in a manner normal and customary to theatrical feature distribution practices” while a decade ago the Oscars required advertising in print publications, even naming publications that would later cease circulation as paper media.

Though costly, traditional media advertising has advantages and continues to be part of the theatrical marketing mix. TV commercials reach a wide audience and build fast awareness that is a crucial audience driver for big theatrical openings, so major distributors continue to spend on traditional media marketing.

The pandemic upended business this year and in 2020, making 2019 the most recent normalized year. S&P Global Market Intelligence’s Kagan research estimates that major distributors spent an average of $43.7 million per release on domestic theatrical marketing costs in 2019. That marketing expenditure by major distributors is more than the production cost of many indie films. And domestic theatrical marketing has experienced sharp escalations in recent years, having climbed from just $30.3 million per film in 2008. The S&P/Kagan figures cover direct costs in buying advertising (particularly pricy TV commercials), creating marketing materials, film trailers, publicity, audience research and distribution expenses for releases from major distributors.

Independents routinely slice a third or more off marketing expenditures compared to major distributors for their theatricals getting national releases. But their box office tends to be even more proportionally lower and that makes theatrical marketing costs difficult to shoulder.

According to TV ad measurement/attribution outfit iSpot.tv, independent distributors spent $338 million in “media value” in 2019 (the most recent normalized year) in marketing costs to support indie theatrical releases. On the other hand, the major studios shelled out $1.122 billion in comparable media value for their movies the same year, providing greater marketing muscle. That breakout classifies studio-owned specialty distribution arms as independents, which is the industry custom.

Though major studio spent more on marketing, their theatrical releases grossed about $7 billion more in 2019 box office dollars than independents, meaning marketing spending by majors yielded proportionally more than indies across industry.

Major studio blockbusters power exhibition economics, but what’s at stake for theater operators is keeping indie movies that fill gaps, create an excitement as fresh content that’s often awards-bait and the occasional unexpected blockbuster. Those surprises include Japan animation-import “Demon Slayer” grossing $47.7 million in domestic box office for FUNmation Entertainment earlier this year despite the pandemic closures. Going back to 2002, “My Big Fat Greek Wedding” grossed an improbable $241.4 million domestically for IFC Films (after opening with an inauspicious $597,362 at just 108 theaters its first weekend).

“We need a wide range of movies available in movie theaters for even if it is for a smaller audience,” says Patrick Corcoran, NATO vice president & chief communications officer. “You don’t want to signal to the audience ‘we don’t have that for you.’”

While a single major-studio-distributed blockbuster blankets thousands of screens, a successful indie release can also fill auditoriums but typically just hundreds or fewer screens per title.

Independent theatrical distributor Richard Abramowitz says a special-interest theatrical film in narrow release can pack a cinema screen at, for example, 7 p.m. on a Monday. That benefits theaters because weekdays are normally slow.

“We can fill an auditorium anywhere in the country at least once.” Abramowitz says. “Our database, the artists’ databases and, if a social impact film, the affinity group’s database are so targeted.” His Abramorama distributed “The Beatles: Eight Days a Week – The Touring Years” and Oscar-nominated docu “Exit Through the Gift Shop.”

Abramowitz adds that, if a screening packs an audience, then addition follow-on showings are quickly booked, again supported by digital micromarketing.

“Savvy independents spend their money on social media because it’s more cost effective and direct,” he says.

Special-interest films’ muscle on a local basis has been evident for years with, for example, movies from India famously generating boffo box office in zones with concentrations of ethnic audiences.

“I think the independents are better positioned than they ever have been,” says Michelle Ross, CEO of Los Angeles-based marketing services outfit Vision Media. “There are so many channels for distribution that can be targeted to curate communities of consumers.”

Still, streamers siphon talent from cinema, including Netflix corralling Alfonso Cuarón for “Roma,” David Fincher for “Mank” and Aaron Sorkin for “Trial of the Chicago 7”; Amazon Prime Video for Sacha Baron Cohen’s “Borat Subsequent Moviefilm”; and Disney Plus for the film version of “Hamilton.”

Further, Netflix signed Steven Spielberg to a filmmaking pact in June.

Though economic obstacles are formidable, indies enjoy some tailwinds helping their films crack cinema. For example, Hollywood filmmakers want their movies on big screens for aesthetics and prestige. The top movie awards require theatrical release.

Further, the financial subsidy paid by film distributors to exhibitors to cover capital expenditures for digital projection equipment is winding down, and the end of this Virtual Print Fee (VPF) will reduce distribution costs for indies.

In the final tailwind boost, muscular recently minted theatrical film distributors are pumping up the indie sector. These include A24 (“Uncut Gems”); Eros STX Global (“Hustlers”); Byron Allen’s Entertainment Studios Motion Pictures (“47 Meters Down”); Greenwich Entertainment (Oscar-winner “Free Solo”); Neon (Oscar-winner “Parasite” and “I, Tonya”); Saban Films (backed by Saban Captial Group) and Solstice Studios (“Unhinged”).

In a sign of heady times, Variety reported in July that A24 was testing the waters for a financial transaction valuing itself at an eye-popping $2.5 billion to $3 billion; its theatrical release prowess is one underpinning of that valuation.

That’s not to say cinema release for indie films don’t face headwinds too. Video streamers enjoy a big distribution cost advantage because they can market their films with inexpensive campaigns targeting just their own subscribers.

“You are seeing a price inflation for these festival films because of increased competition from streamers,” says corporate credit analyst Naveen Sarma of indie films sold at film fest auctions. “The streamers are willing to pay more since they spend less on marketing than if a theatrical release.” He is media and entertainment sector lead at S&P Global Ratings.

Indies pursuing theatrical releases need to keep their marketing costs down to level the playing field. “I think that the industry has gotten more efficient at digital marketing,” Sarma says. “But it’s hard to draw conclusions based on what’s happened in the past 16 months because of pandemic dislocations.”