What I Have Never Understood
Why does the independent portion of the business let the studios and big theater chains set all the rules, set ticket prices, set these DVD prices, set release windows, in fact, set many of the conditions under which the indies and the indie outlets, including smaller theaters, find themselves and their work existing, nay, struggling. Indies SHOULD NOT try to mimic the studios, or be hemmed in by studio economics, or even studio deals, but should strike out and work, continually, to differentiate their product, to court their audiences and their audiences’ intelligence, and push to increase their profit margins through different types of deals.
I want to tackle my frustration with the fundamental imbalance in the Home Video (digital and DVD) equation. Consistent pricing between studio fare and indie fare is an ongoing threat to a healthy life for the indie film business.
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A Bit Of History:
When VHS movies were in their heyday (the ‘80’s and ‘90’s), there were two pricing schemes:
- Low priced films on VHS to buy and have at home, ET and the like, for $15 to $25 or so. Called “sell-through,” they were considered “volume” titles, priced low to move lots of units, and make more money for the studios. All films cannot be volume titles.
- “Margin” titles, which were much higher priced, with smaller target audiences, or anticipated to be targeted to rent primarily, priced at $60 to $110. Called Rental pricing.
Yes, that is accurate. Giant audience films sold for much lower prices, to boost collecting, and niche films with smaller followings had the opportunity to charge premium prices, targeting them to rental titles, and those who desired them heavily could buy them at a much higher margin.
The DVD Pricing Mistake
Enter DVD (late 90’s) and across the board “most-favored nations” pricing. This was not determined by small distributors, and certainly not by indie filmmakers. It was in the hands of the studios. All DVDs were priced at list between about $24 and $30. Wholesale price about half the list. At that time, all movies on DVD became volume products. [Price for volume, or price for margin, like low PC prices (volume) and high Apple prices (margin)].
Indies were forced into a deal with the devil, small margins, with only incrementally higher volume. Their consumer base is just not as big as the big guys; so small suppliers are hemmed in by pricing that favors the big suppliers.
Indie Films Should Be Priced Like Artisan Products
Go to your local chain supermarket, and go to the regular cereal aisle. You will see a volume product, each box identical, each brand completely controlled, some commonality in pricing, so everyone knows exactly what they are going to get. The same is generally true in the cheese aisle, and in the wine aisle.
But if you go to your artisan bakery, and they make granola there, you know their granola will have its own personality, and will not be like the cereal from the shelves of the big national chain. Their granola will be priced quite differently; not like a volume product because they cannot achieve volume in sales. It is an artisan’s offering. You as a consumer care about the granola the same way they care about it when they make it, so you are willing to go a little further to get it, pay more to eat it and enjoy the special product it is. Same with the farmer’s market cheese-maker, and the artisan winemaker. When a wine wins awards, they don’t mark it down, they mark it up! I think artisan films should pursue similar pricing strategies. You cannot achieve volume, so go for margin.
What Pricing Differentials Can Mean In Download Sales
For an independent film costing $1million or less, your film can achieve essentially double its sales in a single market with a properly targeted price. This is just to illustrate the opportunity in thoughtful pricing. Of course you could spend a bit more on marketing to support your title, but at a higher price point you can afford it, and it can quite possibly have a multiplier effect on your sales.
If your Download to Own (Electronic Sell-Through, EST) price point is $18.99 instead of $14.99, you have the opportunity to increase your sales margin on each download in a meaningful fashion.
Seize The Day
Again, indies should not mimic the deals the studios set for larger market films. Filmmakers can rightly say they have little control over the life of their film after they hand it to a distributor, and small distributors may express feeling powerless to change the world of retail. I have worked with distributors who felt helpless against Walmart with their aggressive tactics to lower prices. Hey! Walmart’s purpose is not your purpose. Walmart uses DVDs as “loss-leaders” to get people in, not to honor your product.
Everything around us today says that we are only powerless if we accept it and act that way. Strike off in a direction away from big market practices for small market products. At worst, when negotiating with a distributor, focus on the future prices of your product in different markets and enable this discussion. At best, do not do a deal in which a distributor will allow your product to be devalued in the marketplace by the studio deals. If your product is special, everyone has to agree to treat it as special, and make specific moves to protect that.
Everyone benefits from Film Independent, Sundance, Festivals, IFTA and the hard work they all do to get independent films up and made and get noticed. Art House Theaters have an organization that helps them understand their audience and best practices. I think that Independent Film, Specialty Film needs to have a core organization that pushes film consumption, information sharing and marketing expertise just like the MPAA does, and that will help with best practices, including positioning and lobbying for better pricing for these films, which, frankly, are part of the heart and a large part of the soul of film itself.
We face an existential question. Indie films, their producers, their financiers and their distributors must try to seize control over their futures, and stop letting the larger outfits set all the terms. Unique films must be treated like the artisan products that they are.
The New Yorker Magazine Found Success
The New Yorker delivers a quality product to a specific clientele at a higher than usual 3-digit annual price, and they are targeting subscriber growth. Sound crazy? “The lesson of the past five years has been not to undervalue ourselves.” Says the New Yorker deputy editor.
I think the independent film business undervalues itself and should change its approach.
Filmmakers, their champions, their business partners, and their fans need to determine that they want this special product to exist, to thrive. Higher margins will go a long way to helping ensure this. If you pay more for your cheese, wine and granola, I am sure you and your own clientele would be down to pay more for films that satisfy that special psycho-social itch you and they have, the one that Iron Man won’t scratch.
More To Come On This Topic:
I intend to pursue this topic further in the coming months, and illustrate the value of this strategy for making films more profitable for all.
Let Me Know Your Thinking, And Earn A Significant Discount
Tell me (in a comment to this article) why you believe “artisan” films should be higher-priced (like small-batch to box wine) and you instantly qualify for a 20% discount on our: Greenlight Analysis, Financial Models, Confidence and Probability Analysis or Audience Analysis. And the same to those of you who want to justify why I might be full of it.
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Dave Gregory says
Jeffrey, I remembered when you said something very similar about 20 years ago or more. Agreed then and still do.
Laserdiscs sold at premium prices and that didn’t deter the serious fans from collecting them.
I recall that the sell-through pricing mania started with Paramount’s initial VHS release of RAIDERS OF THE LOST ARK.
DVD’s success only exacerbated the issue.
Why not? Simply stated, even artisan bakeries are an established brand (albeit local) like Marvel and one off independent films are not. Additionally, independent films cost less to produce and market so, in any rational plan, they should cost less. Lastly, the consumer should not pay the price for independents not being as popular as studio films. As an independent film lover I admire your fanciful rational, but it just doesn’t follow the rules of the entertainment marketplace. Any producer who tries to implement your theory will likely lose, not make, money.
Thanks for writing, Dan. Something told to me by an early friend in the business world, “You can always lower your price, set it high in the beginning.” There are many dynamics in this equation, and though there is merit to your view, every brand starts off as an un-established brand, and though you say that indie costs are low, that is often because members of the team work for “hope” wages. You call it a “fanciful rationale,” and say it “doesn’t follow the rules.” Remember, the studios and outlets, driven by motivations which ARE NOT your profitability, set those rules for their own ends. They respond to consumers, but they also spend tremendous amounts of money to lead those consumers. My farmer’s market cheese guy (when he is in season) has to charge at a level that he can keep his farm going. Your thesis would leave every film entrepreneur looking for the leap for themselves, and all indie films would only be stepping-stones that treat previous efforts as “loss leaders.” There are too many loss-leaders in the film business equation that can leave entrepreneurs sucking air. The effect of this is to subject the already heated fires of ambition to further heat and pressure, and without significant loyalty, creates fractures in the metal of common relationships. I reject, however, the idea that “popular” entertainment should set the pricing, and that less expensive films could have a lesser value. They only have a lower profit threshold, and have a smaller market in which to achieve that. I am seeking to increase profit potential across the board. For many, these films are treasures, and they come in all shapes and sizes, from documentaries through personal dramas to uniquely torqued genre pieces. I do business models for independent films, and I see the pinch-points in the equation, costs of marketing, access to shelf space (essentially), list prices (SRPs), producers shares at the end. I am seeking to reduce the risk a bit, and help create a more sustainable indie model. As this topic goes on, I will be illustrating that this whole end of the industry is losing $ it could conceivably capture, and gain certainty by treating high-quality product as high quality product. What I’m talking about is something larger even than just individuals punching for pricing, which is a campaign to underscore the inherent value in a handmade product. Tilting at windmills, maybe, but that doesn’t make the argument wrong. See, Dave’s comment, too.
This is a very intriguing post.
My intuition as a specialty-film consumer is that this idea could work for owning, but not renting, a film. If I’ve seem a film and like it enough to know I’ll watch it several times, I’ll probably pay $22.99 even if it’s just a digital copy (and definitely for something like a Criterion release with physical media, lots of extras, known quality, and print materials). But I would NOT pay $12.99, and maybe not even $7.99, for a rental. Why? Because I don’t know what I’m getting, and those prices are significantly above what I expect to pay (right or wrong) for viewing a film once. Even at the height of Blockbuster, my memory was of paying maybe $5 for a rental? And nowadays I can see a film in the theater for $5 if I go to a matinee or second-run theater.
So I have serious doubts that the sales in your chart (100,000) would remain the same regardless of the price point.; I have to imagine that rental sales in particular would decrease significantly at higher prices.
Thoughtful reply. And anecdotal evidence is important. What I do know is that with more limited release material, there is still consumer interest, and at a higher level than for titles which get broader dispersion. The core of the argument is that audiences have been conditioned to see films as commodities, so that only connoisseurs (witness Criterion in your post) contemplate higher prices. This was a major mistake of the smaller suppliers, who, coming off of differentiated pricing for VHS, keeled over and accepted across the board pricing for DVDs. It has been to the detriment of the specialty product. Even a few dollars a unit can mean real money. BluRays have SRPs that can be $8 to $10 higher than DVDs. My illustration was just to show the differential without having to explain a series of different levels of decision. Just to show money is out there. Thanks for writing.