The Horrifying Economics of Indie Filmmaking

Today on Filmmaker Freedom, perhaps the most depressing episode of this podcast you’ll ever hear.

We’re going to dig into the horrifying economic realities of making and distributing indie films.

We’ll get into why most DIY distribution is bound to fail, and why you should be very skeptical when offered a distribution deal.

I guarantee by the end you’ll be disheartened.

Don’t worry though. This is just part one of two, and in the next episode, I’m going to share you a number of counterintuitive ways to shift this bad economic situation in your favor.

So hang in there, and let’s unwind this economic mess together, shall we? Here’s part one..


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A (spruced up) transcript of today’s episode

Today's episode is basically a rundown of the reasons that making and distributing indie films is rarely a profitable endeavor. And you'll also see why very few indie filmmakers make their entire living within this ecosystem.

Also, keep in mind that all of this is from the perspective of filmmakers. There's actually a pretty robust cottage industry that exists around indie film, ranging from distributors to sales agents to festivals and contests, and so on and so on.

But for our purposes, we're interested in how these economics impact the people actually creating the work that drives that whole industry.

And one other thing to note before we get started. Despite the fact that this stuff is depressing (don't say I didn't warn you), it's really really important to hear this and understand it because we'll never be able to fix this industry and the culture around it if we're blind to the economic realities.

Okay, so that's enough preamble for me. Let's get into the messy economics of indie film.

Filmmaking is really damn expensive compared to other art forms

First things first, and perhaps most obviously, filmmaking is most expensive artistic medium that we've got.

Compared to other types of media, it just costs a lot of money to make a film. It doesn't have to, of course, in the micro-budget world, but even when you're not making blockbusters, It takes significant collaborative energy and resources to take a film from idea to completion.

And what tends to happen is that as your vision grows, often times the required budget to make that whole process happen grows even faster. And this is one of the reasons that filmmakers often end up with very little ownership over their intellectual property. They need outside money to make it happen.

And by doing so, they dramatically dilute their own piece of the pie. It's just something that happens. It's a trade-off that a lot of people make.

And just a little side note on this is that oftentimes the best way to attract and get money from institutional investors is by gearing your film for the mass market instead of a particular niche.

Now in a few minutes, I'm going to tell you why this whole shift away from niche media can be a major major problem when it comes to making money with your project, but we're not there yet.

Films take forever to make, and even longer to profit from

So the next thing that's a bit depressing about the economics of filmmaking, is films take forever to make. It's among the most time-consuming mediums we've got. It can often take two to three years to take a feature from conception to actually launching it into the marketplace, and oftentimes it takes quite a bit longer than that due to various obstacles and whatnot.

Now if you have investor money to pay yourself and your collaborators a salary for that time, that's awesome. But the vast majority of indie filmmakers, especially the micro-budget variety, definitely do not have that luxury.

So they need to find other ways to make ends meet during the making of their project. And this is why so many indie filmmakers freelance. They do corporate projects. They work day jobs. They drive for Uber They work as baristas. They teach at universities, and basically any kind of side hustle you can imagine.

So that's reason number two that the economics of film aren't in our favor. Film is very damn time consuming.

Films are a commodity, and consumer attention is the scarcest resource

Now. Let's get into some of the bigger picture stuff, in terms of how films are perceived in the broader economy.

And the thing that you need to know here is that movies are commodity at this point. The price of a film is basically pegged anywhere from five to 15 bucks. And for a mass-market film, something that's appealing to generic media audiences, it is incredibly difficult to break outside of those bounds, because in a commodified market usually the cheapest option is the one that wins out.

Here's another facet of this. Because of the low cost to purchase a film, and the extremely high cost of production and marketing and so on, traditionally you have to sell a ton of units just to break even on the budget, let alone make a profit.

Now to make matters worse in this whole situation, most people aren't paying for films directly anymore because of Netflix, Hulu, YouTube, Facebook, & plenty of others.

The mass market has become saturated with free or cheap commodity media. And many people don't see any reason to whip out their wallet and just pay for a film anymore. It just doesn't happen as much as it used to, unless what you're creating is some kind of massive blockbuster that might be one of the exceptions right now.

But in terms of indie filmmaking, if you're trying to make a film for the mass market like we talked about before, you are by definition competing for attention against all of these other major players.

In the modern economy attention is the scarcest most valuable resource. And these corporations are pouring billions of dollars into flashy content and advertising and algorithms and platforms to earn their piece of it.

Now in this whole environment, let's just say that your little indie film, at least if you're shooting for the mass market, doesn't stand much of a chance of winning enough attention to earn you real money.

Plaforms make DIY distribution way less profitable than it could be

Okay, so that's sort of like a big picture version of the the media economy. But let's start getting a little bit more specific.

These days, a lot of indie filmmakers are opting for DIY distribution, where they pay an aggregator to get their film on iTunes, Amazon, and maybe a handful of other channels.

The thinking goes that once the film is on these channels, with a little bit of marketing and advertising the money will come rolling in.

But trust me on this one that that is rarely ever the case.

So the first thing you need to consider is platform costs. If you're selling your film on iTunes, they're taking between 30 and 40 percent on every sale or rental. I believe it's 30 percent if you're selling directly, and 40% on rentals,

The same is true for Amazon. So if you're going through Amazon streaming, you'll get between 4 and 10 cents for every hour of your content streamed, and the splits for buying and rentals are pretty similar I believe to iTunes.

And the other thing that's worth noting about Amazon is that they're notorious for slashing their rates and removing films without notice or really giving a reason.

That's actually been a pretty big story in 2019, because they removed quite a few films earlier this year that were actually fairly popular in their niche and making money for the creators. And just at the snap of a finger, Amazon managed slice away of these filmmakers income without any real explanation

So that's something to keep in mind when you're relying on platforms like Amazon. You don't own the channel. You don't make the rules and they can kick your ass off at any moment.

But perhaps the biggest problem with relying on these platforms is that you the filmmaker don't own the customer relationship. The platform does.

So this means that you have no ability to communicate with the people who've consumed your work. So even if somebody buys your film or streams your film and they love it, and even if they would love to stay up to date on your new stuff, you have no way of knowing that or communicating with these people.

These third party platforms are basically like a black box. You put your work in and sometimes money comes out the other side, but there's zero transparency as to what happens on the inside.

Online advertising + platforms = a perfect recipe for business failure

That's just one facet of the economics of these third party platforms. Now, when you throw advertising into the mix, you can start to see why the economics of self-distributing are so daunting.

Many filmmakers think that if they can just get their content on these major platforms like iTunes and Amazon, they'll just be able to buy some Facebook ads and make sweet passive income or something like that.

Now five years ago, maybe 10 years ago, that might have been possible. But thanks to constantly rising ad costs, that's just not the case anymore. Take it from a guy who's been working in the marketing and advertising space for quite a few years now.

For instance, it's really damn hard to break even on your ad spend when you're selling a $100 product from your own platform, where you own the customer relationship. As a side note, many advertisers are willing to lose money to initially acquire a customer because they know that because they own that relationship they'll earn far more in the future.

However, when you're trying to do that for a $10 film, and the platform takes thirty to forty percent off the top, and you don't own the customer relationship and therefore you lose out on the option to grow your audience and sell more, you are fighting a steep uphill battle to profitability with your film.

The bottom line of all of this is that if you're banking on driving paid traffic to your film on a third-party platform, there's a very good chance that you're going to end up losing money on the whole endeavor.

That said, I'm sure there are probably some exceptions to this, and if you or somebody you know is actually making this model work with paid traffic, just reach out to me at rob at filmmakerfreedom.combecause I'd really love to talk to you and pick your brain about how you're doing what you're doing.

The other thing I want to stress here is that I don't want to completely write off paid advertising because it definitely has a place in the DIY or direct distribution game.

Especially when it comes to things like initially launching a project, promoting your email list, and most importantly I think is when it comes to geo-targeting people by where they live so that you can drive them to some kind of local screening or event. There's a lot of potential there for that kind of thing.

But just know that this whole paid traffic game is much much harder and messier than it seems initially.

Distribution companies are supposed to help with all of this, but most of them suck

So based on all of that. I'm sure you can see why film distributors have been such an essential piece of the puzzle for so long. They essentially take your film off your hands and handle these messy economics better than you ever could yourself again.

That's the idea, anyway. But the reality of it is actually quite a bit messier and more depressing.

So contrary to popular belief, it's actually not that hard to get offered a distribution deal these days. You just need to make a competent film-like something that is just decent-and take it around to film festivals and fill markets and things like that.

And if you do that, chances are really high that you'll get some kind of offer, or more likely multiple offers.

And many many filmmakers jump at these deals. I think part of that is that in the culture of indie film, we've made that a metric for success. So just by getting a distribution deal, filmmakers get to feel successful and get a sense of validation for their work and all the hard work they've put in.

Plus of course, there's just an element of wanting to be done with it. Because making an indie film and taking it out on the festival circuit and all of that is a grind. And a lot of filmmakers are burned out by the time they're through that process, and they just want to unload the project and hopefully make some money.

Now, here's where this gets depressing.

Many distribution companies these days, especially the ones on the lower end... Let's just say that they're a bit predatory.

They know full well that filmmakers are seeking validation and just want to unload their projects. So they'll offer filmmakers deals that often include no money up front, or a tiny amount of money upfront, and they'll promise all sorts of great money on the back end, and will regail you with the level of support and services they'll provide.

However, the filmmaker is far too often lucky to get another dollar out of the deal.

Seriously just yesterday, I had a conversation with an indie horror filmmaker who went through this exact situation. He got 500 bucks up front for his film and a lot of promises, but he never saw another penny from that project.

And in all the years that I've been in the indie film space and cultivating relationships with indie filmmakers, I've probably heard this exact same story or a variation on it like 20 or 30 times.

It really is a common thing that happens with some of these bottom-of-the-barrel distributors. But don't worry this whole situation gets even worse.

Oftentimes there's zero transparency into what that distribution company is doing to market and sell your film.

So sometimes they'll end up creating marketing materials and campaigns that you would never approve of for your work, and sometimes they use misleading marketing promises to get an audience in the door.

And obviously when the product doesn't live up to the hype, that can result in loads of bad reviews which can really affect your ability to profit off the film in the future.

Perhaps the most memorable example of this for me was the Tree of Life back in like 2011. So based on the advertising and the trailer, most people thought they were getting like a nice coming-of-age family drama starring Brad Pitt. But when they got to the theater, they were greeted with cosmic explosions and dinosaurs and whispery existential voiceover and basically just Terrence Malick being Terrence Malick.

Granted, that film isn't for everybody, but I think so much of the negative reaction to it came from misleading advertising. So that's something to consider when you work with a distributor.

Now one of the other sketchy practices that you'll see with these more predatory distributors is that they will fiddle with their accounting so that they don't have to pay you.

So for instance in their books, they will dramatically inflate the numbers on what they pay for design, advertising, transcoding, or any of the services that they provide you. And this allows them to keep far more money in their pockets, and never have to pay out to the filmmaker. This is way more common than it should be.

And for me, the final nail in the coffin is that because these are generally all rights deals, you can't do anything with the film yourself. Even if you're frustrated with what your distributor is doing and you want to market and sell it on your own platform or something, you don't have that permission anymore.

Not until your deal expires, which could be anywhere between five and ten years depending on the terms of your contract.

Now I don't mean to cast shade on all distributors because there's some really great ones out there that can do good things for your film, and do things that you never would be able to do yourself and deliver those services in an honest transparent way.

But again, at this point I've seen and heard way too many horror stories of filmmakers being taken advantage of by unscrupulous distributors that I think it's generally worth approaching an offer with a really enhanced sense of skepticism.

Two easy tips so you don’t get taken advantage of by a distributor

So before we wrap this thing up, I just want to offer you two really quick tips for if you happen to be offered distribution like this.

So the first thing is obvious. Just do your due diligence and make sure you understand every single point in the deal or the contract. Make sure you ask questions about how they're going to market their film and how they report back to you and all of that kind of stuff. And if you're ever confused about anything, have a lawyer look it over for you. Buy an hour of their time to make sure you know exactly what you're getting yourself into.

And second, and this is I think is the most important thing, is reach out to other filmmakers this distributor has worked with.

So oftentimes you'll be able to find them directly through the distributor's website. You can reach out on social media, via email, or whatever, and they will tell you firsthand whether they're happy with the services they received from that distributor.

And if you do this a few times with a couple of filmmakers, pretty soon you're going to have a much clearer picture of what you're getting yourself into with this company.

Okay, so I'm going to leave it at that for today. I think that's enough sort of anxiety-inducing content for one podcast.

And again, there are a lot of things we didn't cover here such as working with sales agents and producers reps, such as piecing up the rights to your film and licensing to various territories and VOD entities.

But let's just say that these various things don't change that much for the filmmaker. There can of course be some money involved, but often it's still a losing battle for you.

So I'm sure you're starting to see why most indie films never make a profit, and why only a minuscule percentage of indie filmmakers are able to make their actual living this way.

The economics of the whole thing, at least in this whole traditional ecosystem, are a bit fucked.

But like I mentioned at the top of this show, there are a number of ways to shift these economics in our favor, and that's exactly what we're going to cover next time on The Filmpreneur.

If you’re truly invested in putting these ideas to use, I’d recommend joining Freedom Fighters, my private community for entrepreneurial indie filmmakers.

It’s not another spammy facebook group or noisy forum. It’s an online oasis just for people like us. A place of sanity and respect, where we try our best to support one another in our respective journeys.

So if you’re interested in becoming a member, here’s where you can get the full scoop and apply (don’t worry, it’s totally free).

Hoping to see you inside.

-Rob Hardy

Lastly, if you enjoy thoughtful content like this, you'll love my Sunday newsletter, Filmmaker Freedom Weekly. 

Each week, I share my latest writing and podcasts, as well as a few hand-picked stories from around the web, a short film I love, and a healthy dose of filmmaking inspiration.

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