Independent films have always been a valuable source of content for Netflix, but rarely was it more important than during a public relations crisis two weeks ago.
Showtime and Starz, two-high profile pay-TV services that supply Netflix, the Web's top video-rental service, with popular TV shows and films, announced that once their contracts ended they would reduce the amount of content they provide for Netflix's streaming service. Netflix's Watch Instantly service is seeing white-hot growth and managers are trying to stoke interest by acquiring more material to stream. Some Hollywood bosses have said they aren't comfortable with Netflix's rapid rise.
With Netflix's content supply starting to appear in jeopardy, word leaked to The Wall Street Journal that the company was about to close a $100 million deal for 700 movies from Miramax, the legendary indie studio that produced such classics as "Shakespeare In Love" and "Sex, Lies, And Videotape." That seemed to calm shaky nerves on Wall Street and among the media.
While Netflix has enjoyed a close relationship in the past with indies--any film company that isn't one of the six major Hollywood studios--some smaller producers are asking the same question being raised at the majors: is Netflix friend or foe?
"That's the question everyone is asking," said Orly Ravid, co-executive director of The Film Collaborative, a nonprofit created to helping filmmakers find the right distribution strategy. "The fees that Netflix is paying have changed. At the same time, all the big [video-on-demand] services are aggressively asking [indies] to delay their Netflix distribution. They're worried about Netflix cannibalizing their windows."
A "window" refers to the period of time a specific distribution outlet has access to a film. The theatrical window comes first, followed by DVD sales, video on demand, regular cable, and broadcast television. The decades-old strategy allows studios to license a movie multiple times.
"Netflix is part of that distribution chain, but I advise to make it the last resort" said Tracy Balsz, who consults indie filmmakers on distribution. "You can't make money on it. I tell clients to work through all the channels first and when you reach saturation then go to Netflix."
This is how Netflix handles some indie studios according to Balsz: Netflix managers require them to make DVDs available for the company's home-delivery service before agreeing to stream them. In these cases, Netflix managers typically buy 30 DVDs for a single title. The company will buy more if enough customers begin placing the title into their queues. If a film performs well enough, the company will stream and for this will pay a flat fee.
Of the movies that go this route, Balsz said the most she's seen anybody earn from streaming is $20,000. "If you have $2 million in your film, you're not going to pay it off this way," she said.
Ellen Seidler is glad Netflix at least pays for films. Seidler has become an outspoken proponent of stronger antipiracy laws after the $250,000 film she made last year "And Then Came Lola," was heavily pirated. Nonetheless, the first-time filmmaker said she wouldn't distribute through Netflix again.
"There are other outlets that offer more potential for profit," Seidler said. "Netflix can also undermine sales in other markets where we stand to make more money." Instead of a flat fee, Seidler said Netflix should pay on a per-view basis.
The complaint that Netflix drains a film of its value is echoed by big-studio execs. Netflix has 20 million customers after increasing the number of subscribers by 66 percent last year. With an audience of that size, once the company streams a title, much of the demand has been satisfied, say critics. Why stay up for that 1 a.m. showing of "8 Mile" when you can catch it on Netflix at a more convenient hour?
Steve Swasey, Netflix's spokesman, wants people to know that both big and small studios see Netflix as an important partner and the company continues to add films to the streaming library every day. He said negotiations with Showtime (which is owned by CBS, parent company of CNET) and Starz are ongoing.
As for indie filmmakers, Swasey said Netflix introduces their movies to audiences they otherwise wouldn't be able to reach. "We are a bastion for indie films," Swasey said. "We are a bastion for accessibility."
He wouldn't say how Netflix compensates indie studios but noted that all indie films don't earn the same. He said the company wants to know that there's demand for a movie before shelling out big bucks. "There has to be an audience," Swasey said.
At Netflix, judging demand starts with customer queues, the area where subscribers list the movies they wish to see. The company also keeps a close eye on movies that generate attention at film festivals and among critics. As the Miramax deal helps prove, the company will write big checks for movies that prove they can attract large audiences.
A year ago, Gravitas Ventures was one of the large indie-film distributors that licensed a combined 300 movies to Netflix. Nolan Gallagher, Gravitas' founder, declined to discuss specifics of the deal but confirmed that Netflix pays based on demand. He said, however, Netflix is only one part of a successful distribution strategy. "I would say Netflix is a friend to the indie filmmaker," Gallagher said. "But you can't think of just Netflix. Along with them, you have to work with other important outlets, such as Comcast, iTunes, and Time Warner Cable."
Finally, what happens if we flip the question around? How important are indie films to Netflix?
Anyone who has spent time exploring Netflix's streaming service has likely discovered a superb indie-produced story that they might have missed if not for the service. For me "Restrepo," the award-winning documentary about U.S. soldiers fighting in Afghanistan's "valley of death," was one of those films.
Can films like "Restrepo" help Netflix to continue growing if the service struggles acquiring big-studio content?
"I don't think so," Ravid said. "Netflix stopped focusing on the little guys and more on the big films and I think that's why they're growing so fast. I don't think there's enough people in this country interested in indie films to make that much difference."