I Hope They Serve Beer In Hell

WARNING: This is a long and complicated post that deals only with one arcane business aspect of movies, something that is probably boring as shit to most of you. Feel free to skip it if you don’t care about movie distribution–and I doubt many of you do. You can definitely name your ten favorite movies, but you probably can’t name the distributor for even one of them.

Good news is that the tour is locked and we announce the final schedule tomorrow (Friday):

Alright, it’s been awhile since I put up a post that intricately explains a behind the scenes aspect of filmmaking, so I figured now was the perfect time to talk about more about distribution.

Here is the basic introduction to distribution I wrote about a little under a year ago. I just went back and re-read that and kinda laughed, especially at the first paragraph. Yes, I admitted my ignorance, but if I had only known how little I really did know.

That being said, I actually got most of the basics right, I just left out a lot of details–mostly things I didn’t even think about or know enough to talk about–that would probably have helped someone who didn’t understand the movie business.

The next piece I wrote was what a distributor does and why you need one. Again, this is a pretty good piece in terms of explaining the basics, but again, it leaves out important details and doesn’t explain many things it should have.

This piece will try to build on those first two posts and fill in the blanks of the picture of distribution I have painted, and give you something of a more complete understanding of the process, and what our specific distribution strategy is:

As with all things in movies, it boils down to money. There are two basic costs in making a movie:

1. The negative cost: This is the cost to get from idea to a finished 35mm print. Script, actors, director, shooting, editing, music are all in this cost. This is the cost people usually talk about when discussing how much a movie “cost” to make. But it is not the only cost.

2. P&A cost: Prints and advertising. This is how much it costs to make all the 35mm prints and ship them to all the theaters you open in, plus the cost of all the marketing and advertising you do to promote the movie opening in theaters.

This can be a huge cost, sometimes even more than the movie cost to make, and it’s that second level of cost, the P&A cost, that basically decides which movies get theatrical release and which go straight to DVD. Why is this? Well, once the movie is greenlit and made, that is a sunk cost. The money has been spent and you can never get it back, but you do have a print of a movie, so the decision at the point is this: If we spend many more millions of dollars on P&A to put this in theaters, will we make that money back? If yes, you spent it and get a theatrical release. If not, you go straight to DVD (because that cost is very low).

Now, this decision calculus differs GREATLY between a studio movie and an independent movie. I won’t outline the decision process for studio movies, but it generally involves lots of things beyond just how good the movie is; contractual obligations to producers, relationships with stars and directors, and overseas potential. But I can explain the decision process that leads to studio release with an indie, because I just spent six fucking months going through it and we secured distribution at the end (which only like 3% of indie movies do):

The only barrier for most indies to get distribution is this: Will anyone pay for the P&A? 99% of the time with indie movies, the filmmaker or producer only raised enough money to make the movie, not enough to make AND distribute the movie. This is because it costs A LOT of P&A to distribute the movie–oftentimes more than it takes to make the movie, so a filmmaker will only raise enough to make the movie and then hope once its finished that its good enough to sell to a distributor. Take the Hangover as an example. Their negative cost was 25 million, which is very cheap for a studio movie (but very expensive for an indie). Their P&A cost was 40 million (and that was just to get to opening weekend, it doesn’t count what was spent in advertising after it opened). That is a big raise in price.

The most common and easiest way to find someone to pay for the P&A is to secure a big studio distribution partner. Someone like Fox or Sony or Paramount. Not only do all major studios have distribution arms, they pay for the P&A as well, it’s all part of the standard distribution deal. They essentially buy the movie, they put up the money, and they have their own in-house distribution apparatus that handles everything you need to do to put the movie in theaters, and market it. And they make all the decisions from that point forward.

Now, once you find a distribution partner, the question becomes: How much do you spend on P&A? The minimum to open a movie nationwide–so like 250-500 screens–is about 4-6 million. The more screens you want to open on, the more it costs, not only because each 35mm print is expensive, but because you have to do a media buy to go along with each territory you show the movie in. But, if you have an indie to sell to a major, then the more they spend on P&A, it means the more money they have to make back before you start to see profits. So a huge P&A can mean even a good box office doesn’t get you any money.

The conventional thinking in Hollywood is that the more you spend the better your movie will do, and that in order to open big, you have to spend a ton on advertising. That strategy works well for Transformers or Harry Potter, but that conventional wisdom is very often wrong; movies like Slumdog Millionaire and No Country For Old Men and Juno did much better with a limited opening and slower roll out. There is not one right way to open a movie, and not one right to distribute a movie. It all depends.

This brings me to our movie. In the second piece I linked above, I wrote this:

“It’s not getting distribution that will be hard for this movie–it will be getting the deal we want. That’s always the hardest part.”
I had no idea how right I was going to be. We went through that whole process of selling an indie to a major studio for distribution, starting really with the distributor screening in March. After the screening, we had weeks of negotiations and additional mini-screenings for studio presidents and whatever, and ended up with about three real distribution offers from the big majors. And to be honest, they were not at all what we were looking for–they had very low upfront guarantees, low P&A commitments, and high distribution fees.They were trying to fuck us. [It wasn't personal--they do this to almost everyone]

You see, the type of deal you are offered can vary widely. A distributor can offer you 10 million upfront for the movie and make a 25 million P&A guarantee. That sounds great, except you have to remember that the studio has to make back that 35 million before you start to see profits, plus they take a distribution fee that comes off the top. A distribution fee is the money they take off the gross, before the profits are split. So that means if you get an “amazing” deal from a studio, say 5 million up front and a 20 million P&A, then you are already 25 million in the hole. If the studio takes a 25% distribution fee (very common), then you won’t see one dollar until the movie does at least 60 million in box office.

And this doesn’t even include the negotiation over how profit are defined, which is absurdly complicated. Studios are notorious about defining profits in such a way as to make it look like their movies make no money, so literally every piece of the deal is an intense negotiation–what the distributor fee is, when you get paid, what definition of profit you are entitled to, etc, etc. It is INSANELY complicated, and you can get fucked 100 different ways.

In our case, we were offered very small upfront guarantees, and though the P&A commitments were probably good enough, the distributors wanted insanely high distribution fees. This was the worst case scenario–we get little upfront money, but if the movie does really well, they take a huge portion of the profit. WTF?

Another problem was that because so many indie studios and majors even (Fox Atomic and New Line for instance) had folded in the past six months that there were very few buyers, and without a ton of buyers to bid against each other, and with ALL the studios feeling serious problems from the credit crunch, we were stuck trying to pick between crappy deals. And normally, we’d just have to swallow it and take the best smelling piece of shit. But this time there was another option, one that I had advocated very early on, but was dismissed out of hand:

We raise our own P&A, cut out the distributor and their massive fees, and go straight to theaters ourselves. And thank god, the Darko guys eventually decided they liked this idea.

Normally, this is not an option available to an indie, because most indies don’t have any real commercial appeal, so no one wants to invest 35 or 20 or even 5 million dollars because they don’t think they’ll get their money back. But we are different–we have a broad commercial comedy that we could have sold to a studio at any point in the process, and based on the quality and reaction to the movie, Darko was able to independently raise the P&A we needed to distribute the movie ourselves.

This is a very risky strategy–if the movie bombs, the investors lose everything and we get literally no money. With a deal with a major, we at least get some guaranteed money upfront. Doing it this way, there is NO guarantee. Plus, a huge distributor like Warners has 20 movies a year to mitigate risk–Darko and Rudius don’t have that luxury. We have to be right that this thing will do really well or we are in a world of fuck.

But the upside is huge–if the movie is even a mild hit, we make ALL the money. No distributor is sitting above us, taking half the money off the top that comes in (which is after the theaters take their 50% cut). On even a 40 million dollar box office with this movie, we are all swimming in money, whereas with a major distributor, we might have to hit 60 million before we start to see even pennies.

Anytime I can bet on myself, I am down. It was ballsy and brilliant and I fucking loved it. And the best part: Because there was no studio who bought the movie from us, we control the distribution strategy AND MOST IMPORTANTLY, we control the marketing materials. This is why the trailer and the one sheet are exactly what Nils and Sean and I want, instead of being some piece of shit an idiot studio suit picked out.

Now, the actual process has been hard as fuck. We don’t have a 2000 employee company like Lionsgate doing all the work. We have to bust our ass. But we have help–it’s not like and Nils and Jeff and Sean and I are sitting in a office calling theaters and booking our show. We hired Freestyle Releasing to handle that, which is a releasing company, not a distribution company. The difference is when a major distributor pays for the P&A, they get to take huge fees and own the movie, whereas because Freestyle brings no money to the table–Darko raised the P&A separately–they simply do all the things a distributor does, like book theaters, make and ship prints, etc, etc, but only for a small flat fee.

The other major thing a distributor does is marketing and PR, and that is something we obviously can’t do totally on our own, so we hired Pandemic Marketing, run by the former head of Lionsgate, and MRC PR, to handle those specific areas of responsibility. And then me and my boys at Rudius are handling the internet side of things. In essence, we assembled an entire distribution company for one movie made from five other companies (Darko, Freestyle, Pandemic, MRC and Rudius).
Confused yet? Wait, it gets better:

There is a whole OTHER aspect to distribution I haven’t mentioned yet, for simplicity sake: Home entertainment. DVD, rental, cable, airplanes, pay per view, ITunes, etc. Basically, all the revenue a movie can generate aside from theatrical require a whole separate distribution company, and every studio not only has a theatrical distribution arm, they also have a home entertainment distribution arm, which are separate companies. For that, we teamed up with Fox. This part of the distribution process is extremely important, mainly because its once the movie gets to home entertainment that most movies get into real profitability, and that is one of the reasons we went with a major (Fox is as big as they get). And again, because we are doing our own theatrical release, we got a better than normal deal from Fox–if they put no money up, they have to charge bottom basement fees.

That is six different companies intimately involved in distributing this movie. If you add in the company that is running the tour, the company that booked the tour, the company making all the merchandise, and the company designing the site, and the company doing the trailer and one-sheet, we are looking at eleven companies involved in the distribution of the movie. Exhausting, I know.

The most important thing to take from all this is that this movie secured distribution, and comes out on September 25th. That’s really all that 98% of fans care about–is it in theaters or not. We are.

The second thing to take is that our deal is an incredibly risky one, one that will pay off huge if the movie does well, and hurt us a lot if it fails. High risk, high reward. We are putting it all out there.

And the third thing to take is that we went around the mainstream studio system to do this. If you care about independent film or helping artists own their work or just generally root for the underdog, you are looking at that philosophy embodied in reality, right in front of you. We are not sitting around talking aimlessly about how we wish we could beat the system; we are putting our money and reputations on the line and trying to do it.

And if we do, if against all odds we made a great movie that does really well commercially…it could be great. For artists, for fans, for everyone.

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