New Business Models for Digital Distribution

Any idea what the weekend box office numbers were for April 14-15, 1894?

Or how much home video raked in, the first few days that you could purchase movies on VHS or Betamax tapes?

Cinema was a tiny business at the outset. The Holland Bros. Kinetoscope Parlor in Manhattan took in $120 on its first day of business, a Saturday. When the entrepreneur Andre Blay started selling Hollywood titles on cassette in the 1970s, he made $140,000 during his first weekend.

Those are pretty unimpressive figures.

But by the mid-1920s, movies were generating $1 billion a year (adjusted for inflation). By 1990, home video had grown into a $6 billion business.

Those two examples may be instructive when studios and filmmakers look at digital distribution today. It’s small. It’s tempting to ignore it, and focus instead on selling DVDs. That’s where the money is. But digital, I believe, will gain a lot of steam over the next five years.

This shift from the business of selling physical DVDs to the business of selling digital bits was the focus of two panel discussions earlier this week; they were sponsored by ITVS and the Paley Center for Media. One took place Monday in Beverly Hills, and the other was held Tuesday in San Francisco.

The panel included Rick Allen, CEO of Snag Films; Tami Yeager, a filmmaker who is also working with the Tribeca Film Institute’s Reframe Project; and Jesse Patel of the Participatory Culture Foundation. Filmmaker Tiffany Shlain participated in the SF panel, and Brian Terwilliger was the filmmaker on the Beverly Hills panel.

Even the filmmakers who have been pioneers of digital distribution haven’t yet come close to earning online what they earn from selling DVDs. Terwilliger said that while his movie One Six Right is for sale on iTunes, it isn’t easy to find unless you specifically search for the title. (For some reason, Apple doesn’t list it under “Documentaries” or any other category, and he hasn’t been able to rectify that.) Shlain told me that while her short “The Tribe” was the top-selling short film on iTunes for a while last year, and while she has offered it through other sites, the digital revenues have been only about 1/10th what DVD sales have achieved. (Shlain has also had trouble getting paid by the aggregator that helped funnel the movie to iTunes.)

But everyone on the panel agreed that DVDs will not last forever.

What was most useful at both panels was exploring some of the different business models that are emerging for earning digital dollars from movie releases:

- Paid downloads, a la iTunes.

- Paid rentals (limited period for viewing)

- Free rental or download (to reach broad audience); what’s free may be only a portion of the film, and “extras” or bonus material or a "comprehensive" version of the film may be for sale, digitally or on DVD

- Subscription (a project is released in installments, and interested viewers pay a small monthly subscription to receive them – or receive them first, a week or a month before they’re released for free)

- Slicing and dicing. Educators or institutions may pay a fee for the right to edit or excerpt a full-length film in a way that suits their needs. Instead of the old, “Buy this DVD for $300,” you might say, “Pay $300 for the right to customize this material to fit your course, or to work in the context of a group meeting.”

- Bounty fee/referral fee. A film becomes a tool for generating new members for a Web site or other organization. With the YouTube release of Four Eyed Monsters, for instance, the filmmakers received $1 for every new user they directed to the Web site Spout.com

- Advertising/sponsorship/underwriting. A film will be peppered with short ads (they’re 15 seconds long on SnagFilms), or sponsorship/underwriter messages.

- Live speaking gigs via videochat. One interesting new idea that emerged from the panels is that filmmakers might earn “speaking fees” without having to travel. Instead of asking a non-profit or educational institution to pay $2500 or $5000 to fly you out to address their group, ask them to pay $250 or $500 to have you do a short live talk/Q&A (using software like Skype or iChat) after they’ve watched your film. More groups would be able to afford that kind of filmmaker interaction than the pricier one, and fewer filmmakers would be spending time stuck in airports or jammed into center seats.

No doubt there are other models that will work, or are at least worth trying. Post your thoughts below…