If you are interesting in the business of movies, especially in emerging trends, this is a must-read from Indiewire by Anne Thompson and Tom Brueggemann because it suggests we are witnessing a paradigm shift happening before our very eyes that could have enormous implications in the indie film world.
Thirty years in, Harvey Weinstein knows the distribution business. While he’s a wily theatrical animal who knows when to spend big on a wide release and when to dump a movie, he took a radical route with Bong Joon-ho’s action adventure “Snowpiercer,” starring Chris Evans and Tilda Swinton, seizing the chance to try something new. Weinstein’s decision to open an action picture with major movie stars via autonomous subsidiary RADiUS with a video-on-demand release two weeks after its theatrical opening is rippling through the film community.
As the Hollywood studios struggle with a depressed summer box office, losing the fickle young male demo and locked into a standoff with theater chains on release windows, they’re watching the independents experiment with video-on-demand release models. “Snowpiercer” marks a tipping point in the movie industry’s shift from analog to digital. Why? It marks the most commercial movie to ever open in theaters and quickly go to VOD.
According to Weinstein, following two weeks in theaters, “Snowpiercer”‘s first week on VOD earned $2 million, a company record.
Recognizing the shifts in the market, Weinstein banked on the VOD future three years ago by starting an autonomous division at The Weinstein Co., RADiUS, headed by two presidents, Tom Quinn and Jason Janego, who had pioneered theatrical/VOD releasing at Magnolia under president Eamonn Bowles. Believing passionately that there’s a bigger audience to be found on VOD, the duo have been experimenting with different models for multi-platform releases, from premium video-on-demand, which makes a film available at a high premium price-point ahead of theatrical, to theatrical with a much shorter VOD window.
The traditional model is at least a 90 day window between theatrical and VOD release. From an exhibitor’s perspective, this makes sense because it gives theaters an exclusivity period which “incentivizes” people to get out of their homes and into the local bijou. That model still stands for major studio releases, but things are changing rapidly in the indie world.
The Indiewire article goes into great length about how Weinstein determined not to go the traditional wide theatrical release route for Snowpiercer [bottom line, he didn't think the movie was mainstream enough to warrant those P&A costs], but rather opted to do two weeks in limited theaters, then to VOD — to generate revenue and build buzz — and then to increased theatrical exposure.
What’s really informative about the article is this:
Here’s TOH box office analyst Tom Brueggemann’s financial projected breakdown based on a 2500-screen theatrical release reaching a projected $50 million, based on sources inside and outside TWC and RADiUS.
The theatrical breakdown:
- Marketing expense of $25 million
- Film rental (45%) of $22.5 million
- Weinstein has an ongoing deal with Netflix (RADiUS as an autonomous company owned by Weinstein doesn’t fall under this). Sources familiar with gross-based Netflix deals suggest that the payout to TWC could have been around $10 million.
- Blu-Ray/DVD would have grossed around $6 million (split revenue, with around $3 million net to TWC).
- Cable, depreciated somewhat by Netflix exposure, perhaps $6 million more.
Using those figures (again, all of this comes from discussions with multiple players who have worked on specialized films that have grossed in this range, but these could vary widely) show that at $50 million gross TWC would end up netting around $18 million after marketing is deducted when all initial platform revenues came in.
The VOD breakdown: VOD earnings are harder to calculate and project, but here’s a stab after discussing details with multiple industry sources:
- The first week’s reported total earnings on VOD and iTunes was $2 million, ranking #1 on the latter. Industry estimates on the distributor return — RADiUS would not confirm any specific deals — ranges from 60 to 80%, much more than theatrical.
- Theatrical gross is up to $3.5 million, with $5 million or higher possible. That would mean film rental of between $2-2.5 million. Marketing of about $5 million is a fraction of what TWC’s would have been (increasing VOD sales), but likely could equal the film’s theater gross.
- Radius cites 85 million potential customers (multiple people can view the same purchase). 1-2% of these potential buyers actually purchasing the film — a high number for a first-run or shortly thereafter VOD title — would mean somewhere between 850,000 and 1.7 million buyers.
- Cable VOD and iTunes costs vary — different cable markets have different price points (it’s $6.99 on Time-Warner LA right now — this often decreases in later weeks). ITunes started at $14.99 to buy the film. Let’s estimate that between the two, the average price ultimately will be $9.
- A 2% customer purchase level would mean, at a $9 average price, $15.3 million in revenue. RADiUS’ share estimated at 65% would be about $10 million. Based on the first weekend of $2 million in purchases, this could be a high, but again, the holds for VOD are much better than for theaters.
- Blu-Ray/DVD and cable would still bring in revenue, but with the lower theatrical gross and the early VOD, at a lower level than with a pure theatrical release. Figure an additional $5 million return to RADiUS.
By this model, RADiUS gets an after-marketing initial return of $13 million including theatrical gross and subtracting marketing. Again, this is calculating at the high end of possible performance from this multi-platform pattern. The theatrical-driven alternative model was calculated at a slightly less optimistic ($50 million) estimate and again looks like it might have shown a profit of $18 million.
In context though, and as a test of an unproven model, this is more than a respectable showing. It’s a strong enough result to suggest RADiUS and others will continue to experiment with this.
As a writer, I have a choice: Learn about all this business stuff or not. Personally, I prefer knowledge to ignorance on these matters, although I certainly respect writers who find the more they know, the less creative they are. That said, if you’re ever in an admittedly rare situation where you write an indie feature that is so low-budget and does really well at the box office, you could actually see net profit returns, it’s wise to know the lay of the land how the revenue streams break down on the VOD side of things — hence the value of this breakdown above.
Meanwhile as a consumer, I am thrilled about this approach to VOD. On a personal level, it meant I was able to see Snowpiercer weeks before it opened at a local theater. Granted it’s a movie I will have to see again on a big screen (which I will gladly do) because of the mind-blowing visuals, but knowing I can watch movies the same day or close to when they are released in NY and LA is a major plus. In addition, as a fan of indie films, the more VOD penetrates into the consciousness of consumers living outside major urban areas, I have to think that will grow the overall revenue stream for this market segment which in turn will mean more product for us fans.
Finally, another plug for Snowpiercer. It’s an amazing accomplishment with a story that works on all levels: emotional, intellectual and visceral.
For the rest of the Indiewire article, go here.
UPDATE: Here is a featurette on Snowpiercer: