The film industry has been changing dramatically. The heydays of starting out with a platform release or booking a typical independent film into a few hundred theaters has been vanishing, as exhibitors step up with drastic modifications of the cinematic experience with multiplexes and cashing in on the fading 3-D craze.

Thankfully for independent films, a new lifeline is becoming available allowing even the smallest indie films available for widespread distribution. And you don’t even have to drive to a movie theater.

The development and innovation of emerging ancillary markets are become a crucial factor in recoupment and profits for independent producers and this has had a major impact on approaches to theatrical distribution. Several independent film distribution companies including IFC, Magnolia Pictures and Roadside Attractions have been taking advantage of the emerging platforms, particularly the growth in video-on-demand (VOD) and recognizing and cultivating the interrelationships between the various markets. This new prospect of maximizing profits in ancillary markets is slowly becoming a “win-win” for all sides of the equation being the producer, investor and the buyer.

In recent years, the studio systems have been shutting the doors of the classic and independent divisions such as Warner Independent Pictures (Warner Bros.) and Miramax (formerly owned by Disney) as they found difficulties in strategically empowering independent films into the theatrical arena. Moreover, exhibitors have been challenging the studios which have been distributing films to theaters and releasing them on-demand at the same time, because it is causing losses in theatrical sales.

It has always been difficult to move an independent film into theatrical distribution. The cost of prints and advertising have imposed incredible hardships on independent producers that have been having to contribute their own funds for P&A expense, as distributors have tried to reduce risks on expenditures in the last few years. Furthermore, even if a film that may have cost $10 million, may end up getting sold for $1 million from a buyer at film festivals, thus losing $9 million of the investment, plus the costs of P&A expense that the distributor puts up to market the film when it opens into theaters. An area that most independent producers are confused by is usually the box office receipts. For example if this same $10 million film earns $30 million in domestic release, the box office sales are typically shared 50% between the distributor and exhibitor. The distributor then recoups the P&A expense, plus a standard 25% distribution fee, with remaining payments paid to the producer. But usually the producer is losing money, because the cost and fees associated with the distribution and marketing of the film are so enormous.

With VOD becoming a major platform in independent film distribution, the marketing costs are largely reduced and distributors and producers can take closer to 60% to 70% of the film’s profits from VOD release. So it is possible for independent filmmakers to produce films with low-budgets and obtaining high output to reach a wider audience through on-demand and securing licensing deals with Netflix, iTunes and Amazon on Demand, while the theatrical marketplace continues as a high loss for independent producers and a higher profit center for the studio systems.

Every film will have its unique set of challenges, especially the audience demographic. Recent independent films such as “Black Swan” have higher audience appeal and are able to obtain a larger theatrical release. Other independent films such as “Frozen” which was very a very well done thriller, had been given a rather limited theatrical release, but fared well in secondary ancillary markets. Obviously, these new digital platforms are becoming “windows of opportunities” for producers who feel discouraged by the lack of film festival exposure and lack of success in securing a mainstream distribution deal.

With Film Regions International entering the industry at a time when the stakes are high and the business is rapidly changing, we feel these emerging markets will open up opportunity and enthusiasm for the independent film world. If all companies had “Twilight” under the banner, then you’re able to score a touch-down. But this doesn’t happen. Independent production companies don’t produce films such as “Twilight” and we cannot run a business planning on it.

John Blythe is President and Chief Executive Officer of Film Regions International, Inc. (FRI)

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