VOD Rides to the Rescue of Indie Film

From “Margin Call” to “Melancholia,” day-and-date VOD releasing is racking millions of dollars in revenue for independent labels

Updated, 12:58 p.m. PST

The indie film industry has found a life preserver — and it's not floating in movie theaters.

In fact, it's the very model studios have been unsuccessfully trying to push past theater owners lately: debuting movies on video-on-demand simultaneously — or even in advance of — theatrical release.

"In reality, for most independent movies, VOD will be far and away the largest source of revenue in the future,” Magnolia Pictures co-owner Mark Cuban told TheWrap. “More than theatrical and far more than streaming."

For many smaller indies, the future is already here.

Without early VOD releasing, such recent indie films as Kevin Spacey's financial crisis drama "Margin Call" — expected to double its $4 million domestic box office through on-demand rentals — would face a tough road to profitability.

Likewise, Lars von Trier's latest, "Melancholia" — which is on pace to gross $2 million via VOD vs. between $2 to $3 million in domestic art houses — is connecting with home audiences in a way that the polarizing film might not have been able to otherwise.

Also read: Lionsgate's 'Abduction' Miracle: Early VOD With Theater Owners' Blessing

The platform is allowing companies such as IFC, Magnolia and Roadside Attractions to recoup most of their investment without having to orchestrate expensive print campaigns and costly national rollouts for movies that may not play well in Middle America.

“It’s the most stable releasing period we’ve ever had,” Eamonn Bowles, president and co-founder of Magnolia Pictures, told TheWrap. “Platform releasing, where you opened in a couple of theaters and hoped to expand later, was a recipe for disaster. The paradigm was broken, so we had no choice but to hit on something that made sense.”

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But not everyone in the indie film world agrees that VOD is a savior. 

"It’s much more complicated situation than what Mark Cuban is trying to sell," Tom Bernard, co-president of Sony Pictures Classics, told TheWrap. "If your movie can play through all the windows that start with the theatical release, nine times out of 10 it will be much more successful than the VOD/theater box office."

He calculated that "Margin Call," for example, would have made millions more through television deals and wider theatrical release than it is currently making through on-demand.  

Just a few years ago, with a number of high-profile art house distributors such as Miramax and Warner Independent Pictures shutting off the lights, it seemed like independent film might be dying.

Today, independent film companies are feeling better about not just the prospects for on demand, but are also bullish about the new licensing fees being paid by streaming companies like Hulu and Netflix.

“Even Ray Charles can see there’s a transition going on,” Gary Delfiner, senior vice president of digital distribution at Screen Media, told TheWrap. “There are more and more outlets for filmmakers to get their films out there. It’s not just TV and cable and theatrical anymore. If you make your product in the right budget range, you have a lot more outlets to get it out there.”

Also read: Review: 'Margin Call' a Savvy Look at Wall Street Heroes & Villains as They Crashed

That said, day and date debuts still have their critics among prominent independent film executives, who believe that the format cuts off future revenue streams for certain movies. 

Although exhibitors and analysts continue to caution that on demand will cannibalize a film’s theatrical take, Roadside’s “Margin Call” has performed well in theaters, despite being released day and date on VOD.

Buoyed by good reviews, “Margin Call” has been rented online 250,000 times, noted Jon Feltheimer, co-chairman and CEO of Roadside stakeholder Lionsgate, during a conference call with media and analysts following the studio’s recent earnings announcement. "Margin Call" has made nearly $4 million at the domestic box office, and Feltheimer said he expects the movie to make as much, if not more, on VOD as in theaters.

“Melancholia” has been a more modest performer theatrically, but it is on pace to rack up $2 million on video on demand.

Magnolia has had a number of even bigger VOD performers this year, such as the Sean Bean medieval horror film  “Black Death” and the Japanese action film “13 Assassins,” both of which have grossed roughly $4 million through VOD.

These films have built on the success of “All Good Things,” the Magnolia film that garnered so-so reviews when it was released last winter, but also made $6 million in VOD revenue.

And for indie labels, here's what might be the best part: The split between cable companies and studios is far more favorable than the one distributors receive from exhibitors.

Theater owners usually divide profits 50-50 or 60-40, but cable companies typically allow distributors and their partners to pocket about 70 percent of a film’s VOD profits, according to individuals with knowledge of these deals.

Plus, the marketing costs are significantly reduced. Cable companies routinely run trailers for the films they carry, eliminating the need for costly television advertisements. It also enables companies to dial down on their print spend in magazines and newspapers, and focus on a more cost-effective social media strategies.

“That’s the future,” Marc Schiller, CEO of the indie marketing firm BOND Strategy and Influence, told TheWrap.  “Adding in day and date VOD allows you to reach the masses more quickly. When you think about platform releasing, you're spending all this energy trying to get national press, and 90 percent of the people you are trying to reach aren't even able to see your film, because it’s not released where they live yet. By the time it comes out in their local theaters, it's old news.”  

By virtue of their smaller size, independent filmmakers are better able to experiment with VOD.

Many exhibition chains refuse to carry films that premiere on demand on the same day that they debut in theaters, but there are still enough art house or independently owned and operated theaters that are willing to give films some theatrical presence.

In the case of Magnolia, owner Cuban also counts the Landmark Theater chain in his media portfolio, giving him an alternative if theater owners refuse to carry the company’s day and date films.

That’s not the case with major studio films. The standoffs over early VOD between major studios and exhibitors have been fierce this past year.

Theater owners pushed back mightily when studios including Warner Bros. and Sony began offering movies such as “Just Go With It” and “Unknown” on VOD just two months after they hit theaters. Studios typically wait around 90 days before offering their movies on disc or on demand.

Things got even rockier in October, when Universal announced it would release the action comedy “Tower Heist” on VOD in select markets three weeks after it premiered. Facing a massive boycott by theater owners, Universal ultimately abandoned the plan.

Clearly, what works for indies has yet to work for studios. Unlike their independent cousins, bigger budget films cannot risk losing theater dates even if earlier on demand debuts remain an enticing option.

Exhibitors may still be wary of carrying films that go day-and-date on VOD, but filmmakers are coming around to the format.

“There’s much less overall preciousness about the theatrical experience,” John Sloss, founder of Cinetic Media, told TheWrap. “There’s a long history of filmmakers who want their movies to appear on a big screen, but that’s less and less the case. The quality of the home entertainment experience has gotten so much better, there are new screens and equipment.”

Adding to that, the general high quality of programs from the likes of AMC and HBO has caused prejudices against television — and home viewing in general — to subside, Sloss said.

While VOD is a growing piece of the pie, that doesn't mean it always makes sense to forgo a theatrical release. By debuting movies on the big screen, indie companies ensure their films will appear in the “in theaters” portion of an on demand interface. That separates them from an archival pack that is otherwise organized in alphabetical order.

But there’s no one size fits all model. For films with awards hopes or mass appeal, distributors say that same-day VOD could end up eating into profits.

“If you have a really commercial picture or a critics' dream like ‘Black Swan’ or ‘King’s Speech,’ then you can end up leaving money on the table,” Susan Jackson, founder of the recently launched digital distribution company Freestyle Digital Media, told TheWrap. “But there are a lot of films that are not critical darlings and won’t break through to the masses, so [day and date] becomes a great way to get people to see them.” 

Moreover, Sony Pictures' Bernard says that cable companies may be the biggest beneficiaries of the format. 

"Certainly VOD is getting traction with the genre world, but those are movies that don’t have theatrical potential," Bernard said. "It’s in the marketplace to help boost subscriptions to cable companies, you can’t see pay per view unless you subscribe to the cable system and their mission is to increase numbers and each yearly subscription is much more lucrative than a simple pay per view rental."