Film Fund-amentals: VOD Revenue: TS/SCI or OII

First published November 21, 2013.

Should companies make public the revenue generated by films distributed via video on demand (VOD)?

According to The Hollywood Reporter, this question is a hot topic among indie filmmakers. I’m not so sure that’s true, but it ought to be.  Since VOD is the most probable distribution venue for many indie filmmakers, it would be really nice if they had some sense as to the financial possibilities of this approach. But most VOD distributors are not very forthcoming with the information.

In his report for IndieWire,  Anthony Kaufman outlined The Six Reasons Why You Don’t Know More About VOD Numbers. The core reason is that VOD distributors are, quite simply, unsure how to represent the numbers. VOD distribution is new and rapidly expanding. There is a market. It may be a boom market. Nobody actually has a clue where any of this will go and they are still trying to figure out how it compares to traditional forms of distribution.

Just look at some of the numbers that are available. About a year ago,  Gravitas Ventures  released figures for several films they had released VOD. One of the movies, AMERICAN: The Bill Hicks Story made $90,000 in its theatrical distribution. But during a three-year run on VOD, it took in $600,000. Obviously that is a pretty good increase.

But what does it mean? Inevitably we will try to compare and contrast the VOD release figures to the box office reports and there are really a lot of differences between the two. First-run theatrical is spread out over a time period of roughly 2 to 18 weeks. VOD may span years. Theatrical rolls out on a systematic release through theaters with a quick report on ticket sales. VOD goes through multiple channels, platforms and venues, which also means that the financial reports are often slow in coming and fragmented. Likewise, VOD is increasingly moving into an inter-connection with the TV market, and this linkage is radically shifting the distribution strategy.

With the little bit of information that is available, we can make some basic observations. The first is simply that VOD is commercially viable. Viable? Heck, it is inevitable. Though some indie filmmakers still question this notion, VOD will become the main means of distribution for low budget films.

The second is that comparisons between VOD and box office reports will require enormous adjustments and may really be pretty much meaningless. The business models are extremely different. It would be a bit like comparing the cost of a first-run movie ticket to the admission price to a major league baseball game. Of course, the MPAA  makes that comparison every year, but that is little more than a self-serving exercise in gibberish.

The big questions remain: What is the real break down between the cost of the various channels involved and the platforms required for large scale distribution on VOD, and what is the final split in return between distributor and producer. Ultimately, how many ways is the pie sliced. It is not impossible that a movie could make $500,000 in several years of VOD release and the filmmaker still ends up seeing only a $1.50 in return. These things happen. Almost every day.

So I do understand why many people in the VOD business would like to keep their figures TS/SCI (Top Secret/Sensitive Compartmented Information). But the successful development of VOD practically begs for OII (Open Information Interchange). That is why an increasing number of indie filmmakers are asking for greater transparency in the VOD business. The more VOD becomes the primary focus of indie distribution, the more the producers of indie movies need to know how to determine the film’s economic potential.

Now, transparency is a tricky thing in the movie industry. The mainstream commercial film industry often prides itself on being economically transparent. Of course, that is an Urban Legend.  In reality the entire Hollywood industry is built on figures so fudged, so finagled, and so largely mangled that nobody actually has a clue if they are making money or going broke (for more on this, I refer you to the book Sleepless in Hollywood by Lynda Obst – a must read).

But that’s OK. Hollywood has millions of dollars to blow out of their collective wazoo. Indie filmmakers are often forced to panhandle for lunch money. So they need really precise information in order to create a rational business model for their films. Many indie movies can easily forgo a business model regarding theatrical release because they are not going to get a first-run theatrical release. But they do need to know the figures regarding VOD.

The immediate future (which is happening right now) is one in which theatrical and VOD distribution will co-exist in parallel but separate business models. Theatrical is basically the domain of the mainstream media industry. VOD becomes the primary venue for low budget indie film-making. Separate and basically unequal. Or, at least unequal until the VOD approach surpasses theatrical, which will probably happen within the next few years.

So yes, indie films need open information on VOD distribution.  Of course they will also need some guidelines as to interpreting these figures.  I have no doubt that someone is already working on a book called VOD Distribution for Dummies.

It’s bound to be a bestseller.