Notes on Digital Distribution


November 1997—"Dear Mr. Rush, we regret to inform you that your film The Milkman has not been accepted to the Sundance Film Festival." This had to be a mistake. I had just toiled for two years making a low budget feature narrative about a recent college grad who moves back home to San Francisco and tries to figure out what to do with his life (shockingly, that’s a pretty good description of myself in 1997). I even have a cameo, with the poetic line, "Man, that’s a lot of beer." I actually called Sundance to inform them of their mistake, but they were resolute in their denial. The film was made for $16,000.00 and I remember almost crying when I told my investors (family and friends) that we were rejected. This conversation happened about 20 more times as festival after festival rejected the tour de force known as The Milkman. Even our own local festival in San Francisco said no. I pleaded with a programmer—"I’m from here, this is about San Franciscans, why would you show Truffaut over me?" The programmer politely told me that San Francisco residence or subject matter was not a factor in choosing films—it was quality. The final blow came when I showed the film to my family and the average anonymous score on a scale from one to ten was two. I was crushed.

This thing I created, and which I thought was transcendent and visionary, was being judged a failure. People would always say, "What a great learning experience," and I would incredulously shrug my shoulders, as I knew my film would lead to glory and fame. It turns out they were right—in the four-year journey of my film, I made about every mistake conceivable, and I learned from each one. Filmmaking is very expensive and time-consuming. If you are going to do it, you have to be smart about your decisions, and clear about your responsibilities. Yes, it is an art and usually it is auteur-driven—but it is also a business, a high risk one at that, and it is absolutely paramount that you do everything you can to get your film out there and get your investors their money back.

After my foray in filmmaking, I became a lawyer and started a practice that focused on film, and in particular local film. I’ve worked on a few hundred films now, and am acutely aware of the common mistakes that occur. San Francisco incubates creative endeavors, but it is also to large degree detached from the business of filmmaking in New York and Los Angeles. It is important to bridge those worlds in order to be successful.

The rise of digital distribution deals

The world of independent film distribution has changed more in the past few months than in the past five years. Warner Independent and Picturehouse went under, and many others are on the brink of financial ruin. Meanwhile, digital distribution deals have begun to change the traditional distribution model. As fewer and fewer independent distributors release films, more and more independent films are being made. This glut of films makes finding a distributor harder than ever.

The traditional model of distribution is changing radically, but there are a lot of new opportunities—some beneficial, some nearly fraudulent—for the independent filmmaker who is looking for an audience. The strange fact is that as distribution gets cheaper, it’s harder to make any money off your film.

Filmmakers used to have one option for distribution. Distributors controlled the theatrical, broadcast, home video, and DVD distribution, using those media in that order to market the film. The marketing involved with the release in each medium would create ever increasing public awareness of the film. Now, there are many new distribution companies that want only a piece of the action—one might take broadcast rights, while another takes DVD, video on demand (VOD), educational, or theatrical.

Digital distribution is emerging as a new and exciting distribution opportunity, as pointed out by Peter Broderick in a recent two-part indieWIRE series, but it is still in its infancy. The model hasn’t been monetized. There is no clear path in the digital model to making money from your film. When was the last time you watched an entire full-length indie film streamed on a website? Filmmakers need to ask themselves how their film going to stand out from well known Hollywood titles.

Any filmmaker contemplating a digital distribution agreement must be familiar with the concept, and must know exactly what the agreement means—otherwise there’s a good chance the filmmaker will get burned.

Most people think that digital distribution just means downloading or streaming a film over the Internet. Digital distribution, however, has started to take on more meaning. There are a lot of platforms associated with digital rights: streaming or downloading through a website, VOD, cable broadcast, mobile technology. Today, most broadcast deals require a digital portion of the rights for VOD. But you have to be careful about the rights that you give up—if you grant away all digital rights, you may screw up a broadcast deal.

The extent of digital distribution is defined in the distribution deal, and a lot of these deals are not written with much clarity. Many of my clients have been offered digital distribution deals, and very few are fair. Most are broad, and try to get as many rights as possible. If you do not have distribution in any traditional media (theatrical, broadcast, DVD), then your odds of making money off digital are slim. You should look at digital mainly as a vehicle to get your film out there. Again, with independent films, marketing is extremely important.

It is also important to always consider what you are getting in return for the rights you give up. Are you getting an advance? Revenue sharing? An advance is the best possibility, and if you enter a revenue sharing agreement, it is usually better when it’s non-exclusive. Also, even if you make no money from digital distribution, it might trigger payments to musicians or actors in your film. Check all your agreements with your talent before you enter into any distribution agreement.

Any filmmaker thinking about entering into a distribution agreement that grants any digital rights must think about these issues:

Conflicts: There are a lot of overlapping and conflicting rights within digital distribution, which can include a digital element for VOD, a digital element for pure website distribution, or a digital element for distribution through iTunes or Netflix. All of these can be considered distinct forms of digital distribution. But if you grant away all digital rights, even if the purpose of the deal is simply to stream your film on a website, you will not be able to enter into other deals. Make sure that your deal is strictly limited to the intended type of distribution; otherwise you may lose important distribution rights.

Purchaser: Is the purchaser a content provider or a middleman? It is always best to sell your film to a content provider instead of a middleman. Middlemen just try to sell your film to content distributors, and you get an even smaller percentage of any eventual profits.

Money: If you’re going to give someone else the right to distribute your film, make sure that the payment or advance is fair. In the world of theatrical releases, it’s easy to follow the money; with digital distribution, it’s often impossible. A distributor may make money from charging for content, but most likely it will make money from ads. Determining your share of ad revenue is difficult, and it is in the distributor’s interest not to tell you how it’s done. If your deal gives you nothing but a cut of ad revenue, you’ll probably never see a dime. Get money up front, or be prepared to get nothing at all.

Exclusivity: Almost all distributors are going to ask that you give them the exclusive right to distribute your film. If you are giving a distributor exclusive rights, it is even more important to ensure that you are granting only the digital rights that are necessary to the deal. Also, remember that many of the prominent distributors that have a wide audience will only enter into an agreement with you if they get an exclusive deal. This means that those non-exclusive deals may interfere with a better, bigger deal. Don’t assume a deal is safe just because it’s non-exclusive. If you enter a non-exclusive deal in order to get some publicity, make sure your deal has a good termination clause, just in case that better deal comes along.

Time: Always try to limit the amount of time a distributor controls your film. If you enter into a theatrical and broadcast deal with, say, IFC, it certainly makes sense for the contract to last at least a few years. However, if you enter a non-exclusive digital distribution deal just for streaming over a website for the purpose of gaining some publicity, make sure the time period is extremely short—one or two years.

Bundling: Bundling has been around for a while with regard to home video, but it is becoming more prevalent with digital distribution. A distributor may buy 50 or 100 films, package them together, and sell them off to a broadcaster or Netflix. Unless you get a good advance, the only money you’ll see will come from your percentage of the bundle’s profits. This is another situation where you must know what’s happening with your film; otherwise the money generated by your film could get watered down with all the other films in the bundle.

I know that a lot of this sounds depressing, but this new era of digital distribution is creating a lot of opportunities. Once you’ve considered all of these issues, you will have a better sense of what type of distribution deal will work for you. It’s a new freedom for the independent filmmaker, and if you approach digital distribution carefully, you can reach a very wide audience.

Another thing to consider is that digital distribution isn’t just useful for new films, but it can also be a great way to make money off an older film. A lot of older distribution agreements don’t address digital rights—they didn’t exist then. If that’s the case, you may be able to now sell off your digital rights. Also, be aware that your old distributor, who doesn’t have digital rights, may be exploiting those rights and not paying you for it.

If you understand the shifting world of independent film distribution, there’s a much greater chance that your film will be seen and that you’ll make some money. Of course, you should focus on making your film as great as it can be. But once it’s finished and you’re looking for distribution, shift that focus to making sure your distribution deal is fair and makes sense.

A lot of digital distribution comes down to marketing. Is the buyer marketing your film? If not, are you really marketing your film? Few films become popular without a great marketing plan, so don’t expect it to happen organically and suddenly. We all hear about those films that an audience discovers on the Internet and it snowballs. One example is M dot Strange’s We Are the Strange, which reached a massive audience on the Internet just because it resonated with folks and went viral. However, this is unpredictable and a major exception to the rule, so even though it can happen, you can’t necessarily count on it happening for your film.

These are scary and exciting times in independent film—just don’t let the excitement push you into an unfair distribution deal. The models for digital distribution are still being tweaked to see what works. And we’re all waiting to see how that’s going to benefit filmmakers.

Note to readers: I’ll be writing this column on a semi-frequent basis and want to be responsive to you. If you have any suggestions of topics that you would like to see addressed in this column, please e-mail me at george@gmrush.com. Also, I highly advise everyone to e-mail Sundance and SFFS demanding that The Milkman finally be programmed. Audiences have matured since 1997 and are ready!!!