Falling revenues: Falling demand for indies

The concept of supply and demand came up repeatedly in conversations with sales agents, distributors, lawyers, accountants and other industry personnel when talking about the challenges facing today’s filmmakers. As I briefly mentioned before, the buyers are buying fewer films. Demand is sometimes staying the same and sometimes dropping depending on how much the buyer is making their own content.

Too much supply

On the front side of the supply/demand curve, the supply is skyrocketing. The filmmakers, due to the dropping costs of filmmaking, are making more - many more - films. Technology in the film space used to be quite archaic. There are video clips online of old-style film editing machines the size of refrigerators. And it physically cut the film inside the machine and glued it back together with the clips in a different order. These machines were so expensive and rare that you would have to rent time on one in your area. Editing alone was time-consuming and terribly expensive.

Now with the advent of high resolution, theater-quality digital cameras, the machine required now to edit a movie is: any old PC or Mac. All you need is some software that could be purchased for a few thousand dollars. And now - since the advent of the SAS (Software As a Service) online business model - this high-end film editing software can be rented, instead of bought for $21/month (Adobe Premiere Pro video and film editing). And since you only edit the film for the last few months of production, you can get away with all the non-labor editing costs of your film for less than $100. This is only one example of how film costs have dropped at an astounding rate. Costs haven’t dropped linearly, they’ve dropped exponentially.

Falling revenues

Not long ago, Blockbuster Video and other video stores could be counted on for thousands of DVD sales, even for mediocre movies -thus the boom in the “straight-to-video” film market. Also, foreign markets could be counted on to “pre-buy” many films just based on a poster, title, cast list, genre and story idea.

A “pre-buy,” also known as a “negative pickup,” is when a distributor (usually, a foreign buyer) buys the movie prior to the movie even being finished. The pre-buy can happen at any point before a film is finished but it could happen before the film has been cast or prior to the beginning of shooting. Savvy film producers, like Roger Corman, have been able to sell films with little more than a finished poster and title. Then the funds from the pre-purchase can be used to pay for the production of the film itself. If a producer has secured enough pre-buys for a film then, hypothetically, a film might not need investors at all. All of its budget could be derived from loan, pre-buys and tax credits.

However, pre-buys have been reduced. DVD sales have dried up. Theatrical sales have gone way down especially for indies that are not some large franchise like Star Wars or Marvel.

I spoke with a film lawyer that some producers referred to as “legendary” in the business. Being a film lawyer made him a uniquely powerful voice since, with decades of experience, he was privy to audited revenue data from hundreds of client films over time. As a lawyer representing the interests of his clients and with the power to audit or sue if given suspect data, I knew his perspective would be a great realitycheck for me. He said: “It used to be that 70% of your film revenues were domestic and 30% were foreign. Those numbers have flipped so now foreign sales are 70% of your film’s take. And by the way, foreign sales have gone down over the years. That’s right.” He emphasized “The increase in percentage isn’t because foreign has gone up, it’s because domestic has gone that far down that even though foreign sales are lower, they make up now 70% of a film’s total revenue. So you can do the math and see how far down total revenues have gone.”

Next we talk about one of the tools a producer can use for the marketing and sale of their film - the festival circuit. A film’s festival run can bring it accolades, free publicity, and if it wins awards, prestige and social proof. But the smartest producers know the limitations. Festivals are a vehicle. They are not the destination.

7 The downside of festival culture

I love the film festival culture and the whole festival eco-system that has come up over the last 25 years. It brings a growing and enthusiastic audience to films that may not be reached otherwise. It brings a support system and a sense of community to a very international and fragmented group of professionals that often are neglected. Film festivals bring hope and encouragement to featured filmmakers around the world when financial returns are not there yet. But (as a rule) they don’t bring money back to the investors. Matter of fact, film festivals are usually a money-making venture by the organizers and fees for applications are often one of the primary revenue streams. Critics would say that some festivals are making money from filmmakers rather than for filmmakers.

If festivals reward good filmmaking or risky filmmaking that isn’t commercially viable then they fulfill an important need in this creative industry. But if small festival attention dominates the consciousness of a filmmaker so much that they lose sight of opportunities to help their career then their record in helping filmmakers is more mixed.

As I have referenced before when many filmmakers were equating “commercial” with “bad,” I wonder: why is it so hard for a filmmaker to wrap their mind around making a good, commercial film? Is it only the Oscars that have perpetuated the notion that commercial filmmaking cannot be award-winning filmmaking? Do festivals also ignore or denigrate commercial fare?

The number of film festivals in the world has exploded since the start of the Sundance Film Festival. Online film resources show the number of film festivals world-wide was around 3,000 in 2013. Today, FilmFreeway.com (an online aggregator of film festivals) gives us a total of over 8,400 festivals active in its database. A staggering number of festivals are now operating all over the US. The rise of the film festival

The downside of festival culture 35 culture is one of the most influential, yet under-rated, trends to hit the film industry. Other market-shifting phenomena have gotten a lot of attention - the drop in filmmaking costs, piracy, streaming video-on-demand, changes in consumer viewing habits - but the rise in film festivals has happened so slowly that the shift it has caused has gone mostly unnoticed.

But beware: one of the sales agents 1 interviewed had a cutting comment for those filmmakers fixated on succeeding through a festival run: “The festival world was created specifically to be mutually exclusive to commercial films. It was designed that way. It was a place to put films that had no commercial appeal.” Festivals are working hard to make this statement less and less true each year. As festivals promote themselves, by extension, they promote the films in their festival and their festival winners.

Even though this agent’s sentiment seems slightly outdated, it remains more true than untrue even now. Only a very few festivals (most of them international) got high marks from the professionals I interviewed as having any value to the financial prospects of a film. There are only a handful of festivals in the world that buyers will be present. Only in those festivals would a good showing result in boosted sales. If this agent is right, why do so many filmmakers believe it to be an entry point to the marketplace? Probably because of a few high-profile winners that come out each year. Thus, filmmakers think this is a way their small film can get on big screens and get noticed. Maybe they will be bought by a big studio, changing their lives forever.

Is that true? Mostly, no. The answer there is like asking, “Can you win millions buying a lottery ticket?” Technically, you can’t answer that question with a categorical NO, because someone does win, eventually. But the answer is: Mostly, no. You can’t. Between the reality of what a festival run can do for a film and what filmmakers expect from a festival run, is a large disconnect.

Just your chances of getting into Sundance have gone from 60% to 0.25%. Sundance is one of the oldest festivals and, currently, the most significant in the US. In addition to being a festival, a large number of buyers come to view the films and therefore it’s one of the key film markets, as well. The presence of the buyers is what makes it so important to be featured there. In the early days - according to Sundance’s website - there were 175 films applying to the festival and they showed some 125. Now? You have less than a 1 in 400 shot, if you bother to apply. At one point in the past, Sundance was so popular that the number of applications to the festival was often used as a rough estimate for the total number of independent films made in the US thatyear. Now you can no longer make that assumption. Most filmmakers no longer apply to Sundance, because of the long odds. Even though $85 is a nominal amount to apply to a festival, why waste the time and the $85? The, roughly, 4,000 feature films that apply to Sundance each year no longer come close to accounting for every indie made in the country.

Almost every film festival has awards and an awards ceremony. They often invite filmmakers to lead Q&A sessions before or after the film. They shower their filmmakers with attention and recognition. But do they shower their filmmakers with money? No. The filmmaker isn’t in the festival circuit to monetize the actual festival run. Although monetizing the festival run of a film is possible, it’s not lucrative.

The major way that a film festival run is monetized is by selling tickets to the festival showings. So there’s a need to publicize the film at each festival and get the theater as full as possible. If a film plays 20 times in theaters throughout its festival run, and it plays to a sold-out audience each time, then that could be thousands of dollars going back to the filmmakers. However, it’s not likely to generate substantial revenues that make the difference in a $1M budget film. The biggest, most important win for filmmakers in a festival run is a distribution deal with a studio or distributor. The question then becomes: how often does that happen? Same answers as: “Can you win millions buying lottery tickets?” Technically, yes. Realistically, the answer is a solid NO.

“There are only five film festivals in the world that matter to the value of a film,” said one sales agent. Although he didn’t tell me which ones he was talking about, I can say with some confidence four of them are: Sundance, Toronto, Berlin and Cannes. Maybe he was rounding up? Another distribution expert explained plainly why no one cares about films that get into some lowly festival.

She was talking about SXSW and Tribeca when she said:

The quality of film there is low. The production values and thus the number of distributors there is very low. Sundance, Toronto and Cannes are the only festivals where good films are shown. Tribeca is a very small festival and SXSW you might get genre films there but again, usually no buyers are going there. The buyers only go to Toronto (first), Cannes and Sundance.

She was talking disparagingly about the two of the best known (and hardest to get into) film festivals in the country - festivals so hard to get

The downside of festival culture 37 into that most filmmakers won’t waste their time and money applying and apparently, even if you do get in, no distributors will be there to buy your film anyway. Ok then.

The festival circuit thrives on having a few very high-profile winners. Those are usually found at Sundance. And then they are so widely publicized that everyone uses the availability heuristic to overestimate the odds that they can win one of these because they can so easily call to mind a concrete example of a winner.

Availability heuristic - a mental shortcut that relies on immediate examples that come to a given person’s mind when evaluating a specific topic, concept, method or decision.

(“Thinking Fast and Slow” - Daniel Kahneman)

Winners at Sundance are easy to call to mind. They are splashed all over the headlines. The Big Sick won a $12M deal from Amazon in 2017, for example. The result is that everyone sees these films and believes this is the target. This is the type of movie that is “successful” at a festival. This is the big red dot at the center of the bullseye. Shoot for that. The problem is that Sundance is a uniquely American festival and the films are uniquely American. Many of these films won’t sell in foreign markets and won’t make any money outside the US. Even the comedies won’t sell much outside the country.

The fact is that many in the film business know The Big Sick was the belle of the ball at Sundance in 2017. Fewer people talk about how many films sold for a (much more modest) profit at the American Film Market (AFM) in Santa Monica, the European Film Market (EFM) in Berlin, or Marche du Film in Cannes. These films markets don’t get the big headlines, the Q&A sessions, nor is Robert Redford championing them. They are usually for more commercial films.

Both Sundance and the AFM are film markets where large numbers of film buyers shop for content. Sundance is incredibly hard to get in while AFM is not. Sundance is more like buying a lottery ticket. The AFM is more for working class, low-budget films looking to earn a failprofit for a fair day’s work. If you want to shoot for the moon, apply to Sundance. If you want to play the odds, make a film for the buyers that attend the AFM in November in Santa Monica.

This is exactly the right time to talk about the next issue facing indie filmmakers: press. Sundance gets a lot of press. Most of the films being sold at the AFM have received next to zero and won’t get much when they go out to distribution. Sundance gets a disproportionate level ofattention because it gets a disproportionate level of press. Attention will work the same way for your film. You need to be the Sundance - you need to get a disproportionate level of press. If you want to beat the odds in the world of indie filmmaking, you need to get press to cover your film. But that’s easier said than done.