Eight Myths About Indie Filmmaking: My Keynote From 2014 Midwest Filmmaker Conference
Earlier this month I had the honor of delivering the opening keynote at the IFP Minnesota Midwest Filmmaker Conference. I love doing these types of events especially in cities not named New York or Los Angeles where the changes the film industry is facing are hitting communities extra hard.
Below is the write up of my speech. I did the best I could fact checking given the limited data resources available in film so please feel free to highlight any errors I’ve made so I can amend my own findings.
Hi, my name is James Belfer and I am the Founder and CEO of Dogfish. Dogfish curates and launches the next generation of stars across all media – producers, directors, screenwriters, and entrepreneurs – who are changing the way stories are told and experienced. We started as a production company and angel fund in 2009 to produce and/or finance independent feature films.
Over course of four years Dogfish produced and/or six feature films, all of which saw domestic and international distribution, with five premiering at Sundance — including one grand jury prize winner — and, over the last three films, saw a blended average return on investment of 466%.
However, this is far from the norm. In fact, a NYU study in 2012 showed that the median ROI on an independent film is -13%. The past five years have been marked by tremendous change in the film industry. Film executives and thought leaders alike have been building soapboxes to preach of the impending implosion of our industry, the corporate takeover of content and distribution pipelines, the shrinking budgets, the poor festival sales, and rampant pirating. To which I have to bluntly say: big whoop.
Now don’t get me wrong, I see all the same issues. However, I’m very quick to look past the issue and right into the eyes of opportunity. Technology has given way to a surplus of talented visionaries with the skill sets to cost-effectively tell a story. The channels for inexpensive marketing & distribution exist ten-fold to previous eras. Big data is providing analysts the tools to assess the market and properly pair content to consumer desires in the format and places they wish to consume. The start-up culture has re-ignited investors interests in the type of risk-taking required. No, our industry isn’t doomed, it’s just experiencing growing pains as a new generation is taking the reigns. And with the short time I have with you all today I’d like to take the opportunity to address some of the many myths that are surrounding indie film.
Myth: Star power drives revenue.
Fact: Fan engagement drives revenue.
In August 2013 Magnolia Pictures released my movie Prince Avalanche. We opened in 14 theaters, had a certified fresh Rotten Tomatoes score of 83%, and had a star studded cast of Paul Rudd and Emile Hirsch with a collective worldwide box office take of $2.9B. On our opening weekend we were up against a fellow Sundance darling, In A World. It opened in 3 theaters, had a Rotten Tomatoes score of 92%, and stared Lake Bell and Demetri Martin with a collective worldwide box office take of $1.5, just about half of the take Prince Avalanche’s stars had. The day before our release we paid to have Paul Rudd as a guest on the David Letterman show and plug the movie and slated high profile filmmaker David Gordon Green for Q&As after several of our weekend screenings. Lake Bell, on the contrary, messaged out to Facebook, for free, that she would be hosting a flash mob dance party in front of the Landmark Sunshine theater in between her 7pm and 9pm showings. The result: Prince Avalanche generated $36K for a $2.6K per screen average and In A World generated $71K for a $24K per screen average. Both films continued their release for almost the same period of time (15 weeks for PA, 17 weeks for IAW) yet Prince Avalanche generated a total box office gross of $205K while In A World took in $3M. Prince Avalanche’s opening weekend ended up accounting for 17.9% of our total take, while In A World’s opening weekend was just 2.4%.
What this shows us is that the star power of Prince Avalanche got us theater bookings, it got us some incredible PR opportunities, and a hefty bill that Magnolia isn’t even close to making back. Meanwhile In A World capitalized on word-of-mouth and strong, engaged social media followings resulting in a release that snowballed into a major profitability win.
Myth: To get distribution you need a festival premiere and a domestic sales agent.
Fact: Everyone has distribution right now.
In 2012 the Sundance Institute expanded their ArtistServices program to include digital distribution, free of charge, to any of its films, past and future. Since then it has seen 37 films accept this offering. In that time, 355 feature films have premiered at the fest. Taking out ArtistServices and non-theatrical acquisitions from the numbers, only 81 films were acquired for theatrical and all-rights distribution; a 23% success rate. Of the 274 films that did not get picked up for all-rights only 14% of them opted for FREE distribution through ArtistServices, 39% of them opted for FEE BASED distribution with a digital aggregator, and 47% opted for no distribution at all. Over one-third of all films at the festival didn’t take any form distribution when they have a free offer from the festival itself. Why on earth would that be?
Domestic sales agents work on commission. If they were to accept this Sundance offering then they would get a fat percentage of a $0 sale. All the hard work they just did to screen your movie, fill the seats with buyers, and spend all night trying to sell the thing will have been for naught. So it’s no wonder that no one is talking about the fact that for $950 a year you can pay an aggregator to put your film on iTunes, Amazon, and your own direct-to-fan site for digital download and/or streaming. This deal exists, by the way, and is available through Quiver Digital, a part of the digital aggregator Premiere Digital Services who aggregates content for Sony Pictures, Paramount Studios, 20th Century Fox, NBCUniversal, Warner Bros, Lionsgate, and much, much more. If you want distribution on your film 100% guaranteed, put your Without A Box money to better use.
Myth: Bringing on debt financing lowers equity financial risk.
Fact: Bringing on debt lowers equity financial exposure but not risk.
There is a major misconception that financial exposure and financial risk are one and the same. The current model for film finance is to secure debt financing against tax incentives and foreign pre-sales to lower the overall equity pool. For example, let’s say you have a $1M budget. You work in a tax friendly state and make a few pre-sales giving you $500K in debt financing. Now you only have to raise $500K in equity for a $1M film. Producers will say they have offset the risk of equity by 50% by securing this debt. However, you only offset the exposure of the equity, not the risk. The equity investors are still risking 100% of their contribution – aka the entire $500K position. Now let’s say you secured the same tax incentive and same amount of pre-sales but you DON’T secure debt with it but instead offer it back to your investors when the cash comes in later. You are raising $1M in equity and have $500K in returns, not debt, secured. THAT is offsetting financial risk. The equity investors are now only risking 50% of their total $1M investment.
Indie producers should consider taking only equity for their films. Now first off, I personally think that indie films should cost under $1M without a foreign sales agent attached, up to $3M with a foreign sales agent attached, and never higher than $3M. However, if you offset risk instead of exposure as I described you just raised a major issue: you need to raise more money. But as an investor I would rather give you $1 knowing FOR SURE I’ll get $0.50 back rather than give you $0.50 and not knowing if I’ll get anything back.
Myth: You need to be in NY or LA to be successful in film.
Fact: Regionalism will cause film as a whole to thrive.
Brad Feld in his book Startup Communities explains the tech industry-wide adoption of geographical community centers as the drivers of industry growth. As a result the startup industry should continue to thrive because there isn’t too much reliance on a single community. The success of Boulder doesn’t affect the success of New York, which doesn’t affect Seattle, and so on. In turn, each separated community began to adopt their own unique styles, approaches, and specialties. Each city had its own DNA.
Filmmakers and producers often are swayed by tax incentives and ease of setup when choosing a location to film in. Rather, I think producers and filmmakers need to explore which community voice speaks to them. Filmmakers need to live in communities that understand them and in those they can see themselves ingrained in. Imagine if you forced Lynn Shelton to make a film in LA following typical Hollywood techniques. It’d be like forcing a square peg in a round hole. Instead, she’s helping champion a crew-base and a voice that is truly unique to Seattle. Kowtowing to a single community is a devastating thing for an industry to do. We need to find leaders willing to dig their claws into a single community and help sway the creative and artistic mission to create a specific culture.
Myth: Niche is the opposite of commercial.
Fact: Everything commercial started out as niche.
In 2002 NYC based indie record label, Octone Records, created a new model for distribution called upstreaming. Recognizing that they could never release a platinum album because of their own financial and distribution constraints they struck a deal with Sony BMG that if they hit 125K album sales on their own then it would automatically trigger Sony putting in the capital, PR, and distribution necessary to make the album for platinum. The first band they tried this with was Maroon 5. It took nearly 2 years of being the opening act of the opening act and selling the album exclusively to the earliest adopters for the upstreaming deal to kick in. Once it did, Sony’s help pushed the album into the top 10 of the Billboard 100 and helped the band secure a Grammy for Best New Artist. More interesting is that these early adopter niche sales by Octone (the initial 125K) didn’t phase Sony and didn’t prevent a fair 50/50 revenue deal to be struck for what ended up being the next 5M album sales.
Filmmakers need to aim niche because if they aim for broad appeal then the result will be bland. A strong early adopter, niche following will only help radiate the appeal to new markets and audiences. A distribution partner who thinks your film is too niche is admitting they are bad marketers. Given the big data technology that’s out there today, everything has an audience, you just need to know how to get to them.
Myth: Pirating is bad for movies.
Fact: It is better for both the creators and each platform for content to be everywhere at once, even offered for free.
The film Drinking Buddies was released using the Ultra VOD model for distribution: it was available on cable VOD and iTunes for rental in July 2013 before it’s August theatrical release. Due to windowing requirements, the film had to be pulled from all digital streaming, rental and purchase platforms in November of 2013. When this happened the small indie film instantly shot up to #6 on the most pirated film chart ahead of major Hollywood Studio films such as Thor 2, 2 Guns, and We’re The Millers. So I ask you, who was wrong in this story, the pirates or the distributors? The truth is that the more platforms your film is available on, the better. Accessibility to content allows for viewers with any kind of consumption habit to view the film how they want, when they want. Trying to force the customer to swerve left with a particular release window could end with them doing the opposite and swerve right. It’s best to let the customer have the freedom of choice.
Another story is the 2011 Australian horror film The Tunnel. It was released in theaters, on Showtime, on DVD, and, for FREE, on BitTorrent all on the same day. Yes, you heard me correct, at the same time that the film was being sold for the first time people could just download a torrent of the movie onto their own computer for free. The result? Theatrical and TV viewing was completely on par with projections for the release but DVD sales were through the roof and out of the atmosphere. When digging deeper into this phenomenon the producers discovered that the main driver for these high DVD sales was the BitTorrent offering they made. And that would make sense: when was the last time you ever bought a DVD without having already seen the movie? Giving away the film boosted overall sales.
Myth: Death of Net Neutrality will destroy the content distribution industry.
Fact: Internet Inequality will cause mobile distribution to grow exponentially at a rapid pace.
Now let me start by saying, Internet Inequality is already a common thing. “Coincidentally”, starting this past Fall after Comcast warned Netflix that it would impose a “tax” on the service because of it’s high use of bandwidth, Netflix speeds began to steadily drop by 30%. Immediately following Netflix giving in to Comcast’s demands the service saw an immediate 50% jump in speeds to an all time new high. For all we know, in the next few months the Internet will no longer be free and there’s very little we can do about it.
However, thinking Internet Inequality will cause irreparable harm only highlights another major shortsighted view in film: as of 2013 MOBILE, not Online, is the #1 way that Americans consume content. Not only that, but mobile viewership went up 152% in 2013 compared to a 5% drop in Online viewership – a trend for Online that started in 2011 and is showing no signs of stopping. In fact, America is significantly behind the rest of the world when it comes to mobile. Mobile has been the predominant content platform in the rest of the world for years now mostly due to lack of strong broadband infrastructure. As a result, it is faster to download a 90 minute movie onto your phone in South Korea than it is to download the same movie on your laptop in the US. How much faster? The average download time for a 90 minute film off of iTunes in the US is 20 minutes. The average download time for a 90 minute film off of SK Telecoms 4G in South Korea is 22 SECONDS. All of a sudden, faster buffer times for Netflix on my set top box seems a little dated.
Lastly, I’m going to leave you today with perhaps my most controversial myth.
Myth: Story is the #1 priority of a filmmaker.
Fact: Money is the #1 priority of a filmmaker.
If story was the #1 priority of a filmmaker then how come we aren’t seeing a flood of incredible stories being shot on iPhones and shown for free on YouTube? It’s because filmmakers want money to make their art and until the money comes in nothing will be made. In my opinion, this myth is perhaps the most detrimental thing I have brought up today. Filmmakers need to be making content constantly and reprioritizing story and creation in their minds. Imagine if musicians refused to pick up their instruments and write a new song unless you pay for their studio time first. That would never work. In fact musicians test out new songs on live audiences and friends first (aka their early adopters). Film should be no different. While you’re waiting for the big check to come in you need to be out there working hard every day improving yourself as an artist. Your craft becomes refined with practice and stale with disuse. Allow yourself the freedom to experiment and explore your capabilities as a creator. Try something and fail hard. Just make something dammit! Otherwise you’re not really a filmmaker. You’re a filmmaker between jobs.
Many filmmakers tell me they want to tell their story because of the impact on the world it will have. If that’s true let me draw upon some advice from the startup community one more time, this time from the recent VentureBeat article, What Happened To Changing The World. Chris Klundt, referring to the mass shift from creating products of world value to creating sexting apps in Silicon Valley lead to him creating four key actions in order to get back on track towards changing the world: Refocus, Passion, Ownership, and Balance.
Refocus: we as an industry need to refocus our approach to the creation, marketing, distribution, and monetization of our content.
Passion: we as an industry need to be passionate about making content constantly.
Ownership: we as an industry need to take more ownership of our content and not devalue it.
Balance: we as an industry need to balance our work and personal lives and feel comfortable in the community you are a part of.
The film industry will not change over night. But you can. The more stories we hear about forward thinking releases, or innovative production schedules, or unprecedented marketing contracts, the more we as a collective of independent thinking will facilitate the change. After all, we are the INDEPENDENT film industry. If we worry about windowing, wide commercial appeal, sales agents, distributors, MPAA ratings, unions, tax incentive states, and so on and so on, the more we stray from the core value of our industry: making and doing whatever we want. Thank you.