Analysis of the Independent Film Industry

Posted by admin on September 23rd, 2009 filed in Personal

Written by: Bryan Ross Bieber

A. What is Independent Film & How Does It Relate to the Motion Picture Industry?

While there is no true definition for an independent film, a true independent film is any film that is produced outside of a major Hollywood studio. A major Hollywood studio is defined as a motion picture and distribution company. “The US Motion picture industry generates close to $100 Billion in revenues, is one of the country’s largest exporters, and enormous cultural influences worldwide” (Young, “Making”). There are six major Hollywood studios currently in the United States that command approximately 90 percent of the U.S. and Canadian box office. These companies have many subsidiaries and include formerly independent companies that have been acquired. The major Hollywood studios that currently exist are Warner Bros. Pictures, Columbia Pictures, Paramount Pictures, Walt Disney, Universal Studios, and 20^th Century Fox.

The major studios today are primarily backers and distributors of films whose actual production is mostly handled by independent companies including their own. However, the specialty divisions often acquire distributions rights to pictures with which the studio has had no prior involvement. LionsGate and The Weinstein Company are the two largest independent producer/distributors.

B. Strengths: Distribution, Social Networks, Digital Cinema, & Growing Taste

The major strengths now in the independent film industry are new distribution channels via the Internet, and Video-On-Demand. This in turn allows the producers more control over their work. With the development of social networks, marketing a product through word-of-mouth (WOM) can have a significantly larger impact. Digital Cinema has also dramatically reduced the price of prints making it significantly less expensive to display a product in multiple venues, giving digital filmmakers the same opportunities as the majors. Also, the growing taste of the new baby boomers prefers deeper meaningful independent films.

These new distribution channels are giving production companies the ability to distribute their own films directly on their websites reaching a large global audience. They also now have the ability to offer digital downloads at the click of a button. “Several filmmakers have each made more than one million dollars selling their films directly from their websites” (Broderick, “FIRST”). “Video on Demand and Digital Downloads will become more significant revenue streams” (Broderick, “FIRST”). Selling films directly from your website results in a much greater profit margin vs. retail sales because with a retailer generally a typical royalty is around 20%; you are most likely only to see a couple dollars per unit. By selling the film directly from your website you can make up to 7 times as much with shipping and handling. In addition, you receive valuable consumer information, which enables you to make future sales (Broderick, “FIRST”). The production company can also profit on the sales of other versions of the film, t-shirts, posters, books, soundtracks, and other movie paraphernalia.

The advances of information technology and the emergence of online social network sites have profoundly changed the way information is transmitted and have transcended the traditional limitations of WOM (Laroche). Conventional interpersonal WOM communication is only effective within limited social contact boundaries, and the influence diminishes quickly over time and distance (Duan). Industry experts agree that WOM is a critical factor that leads to the financial success. Numerous studies on WOM effects on the movie industry have mixed results relating to the volume (amount of information disseminated) and valence (the preference carried). However, most suggest that volume of digital WOM is positively associated with product sales, but the relationship between WOM valence and sales is often mixed (Duan). Therefore, ratings do not directly effect revenue but indirectly affect the volume of WOM. “Most studies have reported at best significant-but-weak associations between the favorability of journalistic reviews or other evaluative judgments assumed to reflect artistic quality and theatrical box-office receipts or other indicators of popular appeal…typically accounting for less than 10% of the variance in popularity or market performance” (Holbrook). In terms of DVD renting “Due to the relatively low financial risk associated with renting, consumers may be less inclined to seek and/or heed the advice of others” (Jozefowicz). These social networks allow WOM to be transferred to a much larger audience for a longer period of time. Also, it enables production companies to target their marketing efforts to specific audiences very cheaply. For example, with Facebook you can market to specific colleges, networks, or people who watch movies. You can create FAN pages to build personal audiences.

Digital cinema is now offering all filmmakers a chance to display their products at more and more cinemas. The MPAA reported that last year in 2007 digital cinema was up 115% at a total of 6,455 screens worldwide with a total of 4,632 screens in the United States alone. “Digital cinema has a number of advantages for distributors since movies can be shown in theaters via DVD-like format, satellite, or hard drives. And distributors can save a lot of money on film since a single print can cost upward of $1,000. Thus, if a movie opens wide at 3,500 theaters, the cost savings would be $3.5 million” (Young, “Selling”). The cost of digital distribution is almost nothing, with digital cinema, movies will no longer need to be sold out and have the potential to generate higher box office revenues then ever before. However, “the main reason cinemas are going digital is that they are desperate for an edge” (Business:). This is good news, as the top 20 film festivals also now have digital projectors.

As the baby boomers are aging, their tastes mature. “They are smarter, more active, and have more disposable income and because of pay cable, home video and DVD in particular, they’ve become much more movie literate – and more sophisticated in their tastes…More than 10 percent of the audience now is telling pollsters they prefer independent films” (Gill).

Other studies have been done to show that “star-laden motion pictures, sequels, and hi-tech motion pictures have high production costs. On the other hand, motion pictures financed by independent studios are less costly than major studio motion pictures, yet our results indicate that motion pictures released by major studios don’t earn higher cumulative box-office receipts than those released by independent distributors” (Young, “Selling”).

C. Weaknesses: Major Distribution, Increased Costs, International Growth, & High Supply

The weaknesses of the independent film industry are that the major distribution is controlled by MPAA members, there is a dramatic increase in production and advertising costs, the international growth for American films is eaten up by the major studios, and there is a very high supply of films on the market.

The Motion Picture Association of America (MPAA) and its members control for the most part the theatrical distribution channel. However, It is possible to rent or work out deal with exhibitors, major theaters, to present your film if you can promise them a substantial amount of marketing backing. However, “A distributor, with 3 to 30 films a year, has the power to collect from theater owners, because the owners want the distributor’s next film. You only have one film. Attempt self-distribution and you’ll spend your entire life in small claims court trying to collect from each and every theater owner” (Simens, 373). Thus, it is essential to partner even with a small independent distribution company to ensure you collect.

Increased marketing and production costs are making films more expensive to produce, even with the development of digital film. “Advertising costs have radically outpaced inflation even as media delivery of audiences falls through the floor. So movie companies now enjoy the privilege of paying way more to be far less effective marketers” (Gill). “The Average cost of an independent film released theatrically in North America shot up dramatically last year (not as much perhaps as the 60% the MPAA reported for its member companies)” (Gill).

Marketing costs are proven to be the most important driving factor of revenue. “Overall, the results of our cost-revenue association tests indicate that marketing costs are much more strongly associated with revenue streams throughout a motion picture’s product life cycle. In our regressions, a 10% change in production cost is associated with roughly only a 2% change in cumulative box-office revenue, whereas the same percentage change in marketing cost is associated with a roughly 10% change in cumulative box-office revenue” (Young, “Selling”). Therefore, the cost of the budget does not affect how much money you can make on a film; the marketing spent on a film will have a much greater impact.

The international marketplace may be growing dramatically, but all of that growth is eaten up by studio movies (MPAA members), a couple dozen top independent films…Now most American independent films don’t sell at all overseas” (Gill).

The digital revolution has increased the supply of films on the market. Digital film has made it possible and affordable for anybody with an idea to create a film. Last year alone, 5,000 films were submitted to the Sundance Film Festival, only about 100 of those received theatrical distribution, that’s about 2%. However, “most of the films are flat-out awful (trust me, I have had to sit through tons of them over the years)” (Gill).

Due to the increased supply, it is not possible to approach a major studio and/or distribution company with an idea and have them commit to distribution. Today, “The most that you can hope for is a first look agreement,” said Mark Joy, a local actor and producer. Therefore, you must have something to show them in order for them to consider distribution. The first look agreement basically means that they want the right to view the entire film first before any other major studios. Sometimes it is even hard to get your film in the right hands of people that make the decisions, that is where the respected talent agencies come into play. Robert Rodriquez had the same problem with his film, “El Mariachi,” which he made in Mexico for $7,000 in 1993. He sent it to Miramax only to be shot down. Later when his talent agency got it into the hands of the president of Miramax, he thought that the film was genius (Rodriguez).

D. Opportunities: New technology, Social Network Platforms, & Digital Cinema

This new technology of digital film is dramatically decreasing the cost of film production. However, until recently digital cameras have not been able to replicate the production quality of film. Now there are a couple ultra-high definition digital cameras that are replicating the quality of film and sometimes even outperform it (the quality of film without the grain). One company in particular is making the camera semi-affordable, Red Digital Cinema.

The major benefits of shooting on digital film:

· Lighter and easier to move, resulting in much faster camera set-ups and more locations

· Easier to review the footage to see if you got the shot, editing the footage right on the spot

· Ability to shoot an unlimited amount of takes resulting in perfection

· Cheaper distribution with digital cinema’s

· Cheaper and easier post-production workflow

The Red technology was “developed over the past three years by Jim Jannard – whose famed sunglass company, Oakley, was recently sold for US $2.1 Billion” (Glassman). The owner of Oakley sunglasses has developed a digital camera that shoots at a 4K resolution, which is said to look like film without the grain.

This camera has been used on major Hollywood productions including:

· “Wanted” starring Angelina Jolie, and Morgan Freeman (2008)

· “Jumper” starring Hayden Christensen and Samuel L. Jackson (2008)

· “Knowing” starring Nicloas Cage (2009)

· “Labor Pains” starring Linsay Lohan (2009)

· “Angels and Demons” starring Tom Hanks (2009)

· “The Informant” starring Matt Damon (2009)

(Source: www.Red.com)

With the arrival of Social Networking Platforms, not only has it enabled us to increase our WOM, but also, it allows filmmakers to develop and easily prove to distributors that they have a personal audience, by creating Fan Pages through Facebook and MySpace.

E. Threats: Weaker Economy, Other Forms of Entertainment, & Piracy

The economy is in a recession and people are spending less money. However, when the economy is on the decline people turn to cheaper forms of entertainment, which include film. This results in more of a stable industry, studies are showing that more and more people are staying home rather then going to the movies during this economic slowdown (Schuker). Still, “movies are the second-highest rated consumer value for the money. Behind only chicken” (Gill). Also, these studies do not take into the consideration of renting and or buying the DVD. This puts independent filmmakers who are self distributing in more of an advantage.

“One key reason why so many Hollywood executives have balked at net-based VOD has been the threat of piracy” (Hall). However the director of business development at www.VOD.com has said, “Pirates cannot sail into his digital waters” (Hall).

F. Conclusions

The new technology advancements are making it possible for independent filmmakers to produce films with the same quality as Hollywood studios for a significantly lower price. Everything in the industry is switching over to digital, including projectors. Marketing costs are dramatically increasing so it is ever more important to use creative marketing plans including the social networks to maximize efforts. The more marketing spent on a film the better it does and some studios spend up to half their budget just on marketing alone. After all, if people don’t know or hear about the film, nobody is going to watch it. Self-distribution is bringing the power and control of the films back to the producers by giving them other options to distribute their films other than the conventional method.

The popularity for independent films is rising due to a mature audience. The market is flooded and the competition is fierce so it is ever more important to produce the highest quality passionate stories. The economy is in a recession, however, film is a cheaper form of entertainment, and even though there is more ways to be entertained, there are more people to entertain. The business aspect behind the film is ever more important and without a solid plan for marketing and distribution you are up the creek.

Works Cited

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