GOING BIONIC: DISTRIBUTING INDEPENDENT FILMS INTERNATIONALLY – R.I.P. DVD

It was right after “Star Wars” came out in May of 1977, when my dad brought home a totally groovy, bulky, space-age-looking silver box with red lights, clicking parts, and something called a corded remote control. I had no idea what my Dad’s newest prized possession was, but it looked like something Han Solo and Chewy would manipulate on their cockpit dashboard as they guided the Millennium Falcon through the seemingly endless galaxy. All I knew was that Dad was damn proud of his new toy and he paid north of $1,600 to get it.

It was of course our first VCR.

A whole new world of home entertainment suddenly opened up to my family because now we could watch our favorite movies in the comfort of our own home.  Admittedly, most of those movies were painfully long and wonderfully inept Indian films that sucked the life right out of me. But I did get to sneak in watching an “Empire Strikes Back” or two along the way.  My cinematic obsession of collecting movies on VHS bordered on insanity over the next two decades, as I would buy movies I didn’t even like just to have them in my collection. Hell, I still have several VHS videos I’ve never even unwrapped.

Then, in 2001, I followed in my father’s footsteps and paid $1,500 for a high-end version of the next generation in home entertainment, a DVD player.  My continued obsession to engulf myself into the newest form of entertainment got the best of me again, as I started building up an army of DVDs.

The interesting thing is nobody seemed to care when DVDs made VHS videos obsolete. DVDs were better, stronger and faster, hence “more bionic.” Everyone just seemed to accept the fact that their mountain of VHS tapes were about as useful as the dirty diapers they would soon accompany in the local landfill.

The transition from VHS tapes to DVDs was seemingly flawless because sales for new DVD players and DVD titles were very robust.  Hence, the entertainment industry didn’t feel the pinch of losing the entire sales market for VHS and VCR sales (there were over 900 million VCRs sold worldwide).

Obviously, that’s not the case today. DVD sales, much like my beloved nine and a half year old dog Pepper, are heading into the last four or five sunset years of their lives.  The problem is Video On Demand (V.O.D.) – the next technology that’s knocking on the door to force DVDs into retirement – isn’t bionic enough to replace deeply declining DVD sales.  Thus, DVDs are dying a slow death. It’s like knowing you can always beat your nephew in a game of “Horse” until that fateful day he gets a hell of a lot better and reminds you your days are numbered. You ponder how the hell your “technology” got so outdated overnight, and all you can think about is how it’s your own ass that will be kicked in the future. Simply put, I’m DVD and my nephew Sean is V.O.D.

This brings me to a few points that you should consider about selling DVDs in today’s worldwide marketplace. These points are meant to help position your film in its most advantageous light by understanding the darkness which surrounds it.

The DVD Market Is Not A Sales Justification For Making A Bad Film
It always amuses me when a filmmaker tells me it doesn’t matter how their film does theatrically or on cable, because they’ll “make the money up on DVD.” These days, those are famous last words right before you file for bankruptcy. While in the past major studios have enjoyed a steady diet of healthy DVD sales that have saved several theatrical failures, the “nutrients” of that diet are now depleted.  In fact, the only chance of having healthy DVD sales today is: a) having a hit theatrically, followed by a multi-million dollar marketing campaign, or b) creating a very specific DVD for a very targeted consumer base. Either way, it’s quite rare that DVD sales will help the financial viability of an average film. Not to say that you’ll make an average film, but if it doesn’t turn out to be as economically magical as you had hoped, don’t expect your DVD sales to save it.

Shelf Space At Retail Stores Is Disappearing for Indies
Quite a few DVD distributors have deals in place to sell their product on the shelves of major retailers like Wal-Mart and Target.  The problem is, all national retailers are slowly but surely killing their shelf space for DVDs. This makes it virtually impossible for anything other than a major studio release to get any shelf space whatsoever.  So you should ask your domestic DVD distributor what percentage of their DVD retail titles are actually indie films.  If they give you a satisfactory answer, then go on to ask them how many units they would expect to move on your title.  Lastly, you should ask what the expected time frame to get paid is, because I assure you it’s a lot longer than you think.

The Truth About Retail DVD Sales Is Ugly.
In an effort to give you some insight on how a retail DVD sale to a monster sized retail outlet works, here a few key points:

1)   You don’t set your DVD sales price. Neither does your distributor. The value of what your masterpiece will be sold for is determined by the retail chain, because they will give your distributor a “take it or leave it” offer.

2)    The big retail chain will make your distributor pay for the cost of producing, duplicating and shipping your DVDs to the retail chain. Now please be clear on this point – the retail chain does not buy any DVD copies of your film from your distributor. They have your distributor pay for your DVD copies and ship them to the retail chain without getting paid for them.

3)   Your DVD copies will sit on the shelves (or in the discount bins) of the retail stores for about nine months until they close the window on your first sales report. Does your distributor get paid for your DVDs then? Not even close…

4)   From the date your distributor gets the first sales report from the retail chain, the retail chain has another 3-6 months to pay your distributor.

5)   But… before the retail chain pays your distributor, they subtract all of the customer returns of your DVD. That really sucks, because on independent films 20%-70% of retail DVD sales are returned. Thus, your distributor may only see 30% of the original amount, one and a half years after making the sale.

6)   Once your distributor finally gets paid, they then have 3-6 more months before they have to pay you. Thus, filmmakers will usually have to wait 18-24 months to get paid on their domestic DVD deal. Nobody wins in this situation, outside of the goliath retail chain that gets to dictate the terms of getting their precious shelf space.

International DVD Territory Sales Generally Pay Out Quicker Than Domestic
The beautiful thing about selling your DVD rights to international companies is you generally get paid far quicker than doing a domestic deal. The difference is the foreign entities are paying a flat (negotiated) fee for your film. So, the first time you get paid will also be the last time you get paid on the deal.  Of course, there are some exceptions when a back-end profit can be negotiated on your DVD sales. Since your international distributor/sales agent is dealing with countries with various laws which limit what they can or cannot do legally to a company that owes them money on your film, you should be happy with your up-front fee because it’s probably all you’ll ever see.

Advances Are Generally Viewed As First And Last Payments To Filmmakers
Many distributors have an innate belief that if they pay a filmmaker an advance then they don’t ever have to pay that filmmaker a dime on the deal again. It’s crazy, I know. But that belief holds true, even in the most disgusting of circumstances. For example, one of my former clients shared his domestic DVD sales report from another company with me. His film had made over $1.5 million in domestic DVD sales, but he (the filmmaker) had only received…brace yourself for this… $20,000 from his initial advance. That’s it. Twenty grand. I’d love to tell you that such a hard screwing is rare and unusual, but I’d be lying if I said that.

Netflix Should Be Last On Your Dance Card, Not First
Many filmmakers don’t realize that selling your film to Netflix too early in the process will virtually kill most of your viable sales. Think about it. If consumers can get your movie through Netflix for free, then distributors probably won’t pay for the rights to sell it to other media forms (TV, Cable, V.O.D. etc). Don’t get me wrong; Netflix is an excellent outlet for your film. It’s just not the first outlet you want to plug into.

DVDs are like the rainforest. We love them dearly, but they are disappearing minute by minute. The key for us now is to embrace the next “seeds of technology” and hope like hell we’ll replenish our vast forest of entertainment.

Thank you for lending me your eyes and I’ll see you next Tuesday.

Read earlier installments of “Going Bionic”




Posted on June 22, 2010 in Features, Going Bionic by
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