Industry overview
The Media Landscape for independently produced content has become volatile due to shifting distribution outlets
Four major trends in entertainment distribution have created opportunities in commercially-oriented independent content
A brief review of how each major entertainment revenue segment is trending will provide insight into areas that are oversaturated and areas that are underserved
SVOD is dominated by Tech-driven companies and Major Studio players that can invest and lose billions in TV episodic content as they capture long-term market share and consumer brand equity, unfortunately, most will not spend aggressively on Independently financed films except for occasional filler needs. This trend of limited placement for smaller films will increase as Major Studios reorient their internal production departments and release strategies to fully focus on their SVOD financial future.
TVOD remains focused on feature films and has become the main place to find Hollywood’s recent Stronger Independent films and is still an important window to deliver meaningful revenue. TVOD On-line outlets include Vudu/Fandango and I-tunes and Goggle Play as well as on cable systems and Digital Outlets. This will remain an important way to monetize Independent films for the foreseeable future and requires smart distribution placement combined with strong social media and analytics to drive consumer transactions.
AVOD had long been ignored due to historically lower quality content but as “must-have” SVOD options multiply, the combined cost is driving huge growth in AVOD consumer traffic. This trend has exploded over the last 12-18 months due in part to the arrival of major corporate ownership of AVOD assets. The clearest examples are Viacom’s ownership of Pluto TV and Fox’s purchase of Tubi. The next major trend will be TV platforms like Samsung and LG further extending the consumer reach. Independent Films will benefit immensely from this strong growth in consumer viewership when focused on the appropriate audience demographics.
DVD has long been written off by experts on the coasts, but it remains a viable platform for lower-income middle American demographics and will continue to drive real revenue for the next 5+ years. Companies that produce content that has broad mainstream middle American appeal must ensure proper physical distribution to maximize this meaningful revenue stream. We still see significant revenue from action and faith films with a recognizable cast that delivers to this demographic.
SVOD players currently dominate the consumer’s daily consumption attention driven by super-high production value episodic TV coming from a broad group of mega-corporations that include; Netflix, Amazon Prime, Disney, Warner’s HBO Max, and Paramount+. Many of these Mega Players have cut short their theatrical windows and placed new hit films on their streaming service which has reduced the level of title competition in the TVOD and EST window.
TVOD & EST outlets have gained new value for well-produced Independent Films and TV content and many consumers still find their favorite one-night movies in this window. TVOD services have developed numerous ways to reach consumers through high traffic download sites, cable operators, satellite providers, and other free access outlets from companies like I-Tunes, Google Play, Vudu/Fandango, Comcast, Spectrum, Dish, and Direct TV
TVOD & EST relies on driving actual measurable transactions that can evaluate the cost of promotion and advertising with actual revenue generated to determine profitable activity. This is a crucial revenue stream and skill set for Independent film’s future profitability.
AVOD has seen a massive traffic shift in the last year and I believe we will see it double again in the next two years. While we have already seen several major media companies recognize this trend and begin to stake out AVOD strategies, I believe it will remain an area dominated by higher quality Independent content and must be a huge focus for future Independent content exploitation. Viacom has purchased Pluto TV and Fox purchased Tubi. Roku has recently been rumored for sale. Comcast remains committed to Peacock and using an AVOD service to exploit their Universal and NBC assets in the future.
Industry overview
I try to update this section every few months so my observations can remain current and relevant and once again we are experiencing a massive shift in content development focus and subsequent distribution priorities driven by several macroeconomic factors. The current period is certainly still being influenced by the post-pandemic effects where the major Hollywood studios rushed to increase their content output in both feature films and TV episodic content. The studios all saw massive subscription growth during the pandemic and felt confident this consumer shift to online entertainment would become a permanent trend. This explosion in content development and spending was driven by a mad dash for market share as most studios now operate their own direct-to-consumer streaming sites utilizing the subscription revenue model of SVOD which was pioneered by Netflix and emulated by all large corporate players. This focus on growth over profitability was fueled by Wall Street rewarding many of the studio conglomerate stocks with huge trading multiples and sky-high valuations that certainly perpetuated the focus on market share growth metrics over sound return on investment metrics. That started to change about a year ago as Wall Street started to recognize that pandemic on- line consumption across numerous industries was beginning to recede as our society started to return to older consumption habits that de-emphasized online and remote-only lifestyles. We have seen this accelerate recently with many of the Tech industry darlings experiencing flat growth coupled with rising interest rates which makes these debit-heavy growth strategies even more risky and costly.
These macro trends have focused virtually all the studios to make three significant shifts from the Go-Go era of just a year or two ago. First, they must dramatically cut back on the development and production of content due to the higher costs and unrealistic short to mid-term return on those investments. Second, they must cut staffs that had ballooned in size and expense that was fueled by this unsustainable growth period which has at least temporarily passed. Third, they have realized that the singular focus on the SVOD revenue model is not strategically viable and they need to return to more diversified revenue approach that has reliance on theatrical exhibition and advertising-driven consumer distribution also referred to as AVOD. Suddenly Netflix, HBO Max, Amazon Prime, and Disney+ are all launching major advertising-driven platforms that will be more sensitive to consumers’ limited spending on entertainment especially with a possible recession on the horizon. While these shifts in strategy and focus expanded revenue streams seem obvious now, 12 months has certainly seen a seismic realignment that has far-reaching implications.
The independent content producers and their distribution partners will of course be equally affected by the Marco trends and the studio system which drives our industry. If we look back four or five years ago, Independent Content Creators were the first to really embrace the SVOD business model, and early pioneers like Netflix and Amazon Prime were eager to scoop up their independent films and TV series which provided an important revenue transition for Indies as DVD and physical media began to fade. Then the studios started to watch Netflix dominate the revenue pie and draw major players from the creative community away from the studio system so we saw studios begin to build their own direct-to-consumer SVOD offerings. That motivated the ever-resourceful and flexible independents to shift and fully embraced the emerging new AVOD platforms with names like Tubi and Pluto becoming huge supporters and revenue drivers for Independent content and their distribution partners. Now Independents must be prepared for the studios to once again following their path to new revenue opportunities found in the AVOD approach and that will add new pressure to this critical revenue stream that has become so important to Independent Producers. I am sure this recognition has started to be seen by many and there seems to be two very different yet viable responses for Independent content creators.
The first approach is to increase the casting of well-known actors and spending more on productions to make stronger independent content. This means spending considerably more on above and below-the-line costs to create higher-profile projects that can better compete for eyeballs on AVOD platforms. AVOD platforms will have more options to show studio content and consumers will be attracted to those films so the independent producer needs to find ways to cast higher profile talent that brings credibility and consumer followings to their films. The good news for independent producers is the studio business model has become focused on a buy-out approach for talent which limits the upside and backend participation they used to enjoy in a Box Office-dominated system. Giving strong talent a real profit participation and equity in the independent content is a major motivator and will help allow these independent films a chance to attract well-known actors. Another key strategy that I have recently employed is creative scheduling where your project is flexible on when you shoot with certain key talent to fit into their downtime. Most Indie films are shot in weeks not months while the bigger studio approach is more involved and takes much longer. Giving talent the ability to make an indie film during the month or two they have open before their next studio project is an effective counterbalance to the studio approach. It is also helpful if you can provide the profile talent with input into the creative script writing, and character development process. These expanded roles and influence combined with more participation in the economic success of independent content will be an important way the Indie film business continues to thrive.
The second approach I see being taken by many indie filmmakers is almost going to the opposite extreme and finding ways of making smaller films at lower cost budgets so the selling or licensing price can be far lower and the ability to break even and get to profitability is less difficult. This approach has its limitations and challenges in an ever-increasing competitive marketplace. There are older stars that will work for less to keep their cash flow going as their careers taper. There are up-and-coming talent that still needs to build a resume and refine their acting skills, while also paying their monthly rent which can be very helpful if you catch them just as their careers start to blossom. The challenge is finding the outlets or distributors that also need to balance their spending levels while they seek growth but often with limited short-term capital or open-to-buy dollars. I have seen this work in many instances but it takes smart scriptwriting and producers that understand how to tell an effective story with interesting characters without lots of bells and whistles. Set design and scene changes need to be carefully considered. Scheduling and shooting your key talent in rapid condensed timelines is also an important skill set to make effective content.
In conclusion, the current macro trend may drive the studios to change their model and that shifting business approach will undoubtedly have a ripple effect on Independents. This will require the independent industry to lead with innovative approaches once again. Flexibility and openness to change have always been hallmarks of the independent segment of our industry and I can assure you that will be even more important as we move forward in this dynamic and interrelated industry.