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The film distribution business: What’s changing?

With the rapid rise of the on-line video market, arrangements between sales agents, distributors, content aggregators and digital providers are changing dramatically, writes Roderik Smits.

The field of film distribution has historically been reshaped by technological change. In particular, the rapid development of the satellite and cable television market and the home video market in the 1980s had a dramatic effect on the business in terms of financing, production and distribution arrangements. Home video and the new forms of television created additional distribution windows.

The video market in particular offered a wide variety of films to audiences. Some of what might once have been called B-films were now specifically designed for video sales and did not receive a release in cinemas, demonstrating the enormous demand for product in this evolving market.

Above all, the development of such additional distribution windows had a positive effect on the film industry and the state of its economy. Film became a newly lucrative business because the demand for films grew so dramatically.

The prospect of film revenues in the theatrical market, video market and television market was particularly to the benefit of producers, sales organisations and distributors. Alongside existing companies, many new independent production and distribution companies entered the film business in this period, with some companies expanding into the video and television market, while others established partnerships with more specialised companies, such as video distributors.

The newly established distribution process – in which sales agents would become attached to represent films to distributors in international markets, and distributors would release films in the theatrical and additional distribution markets – remained constant in the years that followed up to the present.

Distributrion process

Figure 1: Film distribution processes

The digital world’s new gatekeepers

That is now changing with the recent development of the on-line video market. Although the on-line video market is still in an early stage of development, the effects are clearly noticeable and concern all types of organisations operating in the business.

The role of film distributors, in particular, has come under intense scrutiny as new gatekeepers such as content aggregators and digital providers replace them in the on-line distribution process, in which sales agents negotiate deals with content aggregator to access digital platforms or close deals directly with digital providers, such as iTunes, Amazon Prime and Blinkbox.

That is not to say that distributors will disappear, but their role is likely to change and become less powerful if the on-line market consolidates its growth. In fact, they are already anticipating the changing nature of the distribution business and are developing new strategies in an attempt to make their business ‘future proof’.

One response has been to establish closer ties with producers (e.g. output deals or first look deals) to exert more control over the creative development and distribution of films, without competing with other distributors. Some are even turning to film production as a core activity. Other distributors such as London-based Curzon Film World – which owns the specialist distribution label Artificial Eye – have established their own video on demand services.

The changing role of film distributors

To better understand the impact of on-line streaming, it is worth considering how much the on-line revenue market is currently contributing to total cinema revenues. According to the latest figures for the UK film market, the video market generated £2.24 billion in 2014 (BVA, 2015) – more than double the £1.058 billion generated by the theatrical market (BFI, 2015).

While 73% of the video market remains in a physical rather than digital format, the market share for online revenues is growing year on year. What are the consequences for film distribution when on-line streaming accounts for 60% or 70% of total video revenues?

Distributrion process new

Figure 2: Film distribution processes. Letters in orange indicate the changing nature of the distribution business. The video disc market, video on-line market and television market become increasingly connected, and the role of content aggregators and digital providers becomes more influential.

One likely effect, of course, involves the increasingly important role of digital providers. Many industry observers expect that leading providers such as iTunes and Amazon will become much more dominant in the near future, particularly if a single digital market in Europe will be created, which would inevitably serve the interest of these global giants.

But does this mean that they will also become more involved with the development and financing of films? Some SVOD companies, such as Netflix, have invested in recent films. Will such companies have a more dominant influence over the creative process of films?

Another major consequence concerns the role of film distributors, because they depend on revenues generated out of the theatrical and video disc market, while they negotiate television deals with the broadcasters. Growth in the on-line market will have an immediate impact on DVD and Blu-ray sales and rentals, and potentially also on the theatrical and television markets.

There is also the trend that television companies have established their own on-line platforms (e.g. Sky and Virgin Media in the UK), or formed strong partnerships with digital providers, while also the specialised video distributors become increasingly engaged with on-line distribution. Thus they establish a more competitive position by expanding horizontally or joining forces.

For the (traditional) film distributors, this means that they become more dependent on revenues generated out of the theatrical market, while they face increasing competition from the major global players and the more specialised services in the television and video market.

Roderik Smits presented this paper at the Distributors, Discs and Disciples: Exploring the Home Media Renaissance symposium organised at the University of Worcester on Saturday 23 May 2015. He will be moderating an industry panel discussion on ‘Distributing and Selling Film and TV in Europe’ at the New European Film and Television Culture: Trends and Challenges conference organised by MeCETES at the Danish Film Institute, Copenhagen, on Wednesday 9 September 2015.
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