Direct objects

Independent video operators are bracing for more competition as the major studios ramp up direct-to-video efforts.

Joe Amodei has never been keener on direct-to-video films. As president of Hart Sharp Video, Amodei is a veteran film market buyer, always on the lookout for compelling pictures -- across all genres -- that can be picked up at affordable prices and provide a good return on his investment. Technology has opened up new channels of distribution, so when he eyes prospective acquisitions at the American Film Market, among other markets, Amodei considers potential revenue from digital distribution and TV rights as well as traditional DVD sales.

"It used to be direct-to-video meant just that -- a film we released on video," Amodei says. "Those days have changed. Today, we marry our DVD release with a cable premiere and a day-and-date release electronically over the Internet. It's important for us to be able to cross-market the title over all those areas at once."

As a result, his purse strings aren't as tight as they once were. In the last year, Amodei has bought a dozen films in different types of deals, some of which had hundreds of thousands of dollars in upfront costs and others that had none. Among his biggest successes are 2005's "CodeBreakers," an ESPN drama about the U.S. Military Academy's 1950s cheating scandal, and 2002's "Naked Weapon," an Asian action film he purchased for less than $200,000 after seeing it at AFM two years ago. "It's still one of my top sellers," Amodei says, noting that the film already has brought in more than $1 million in combined DVD, electronic and TV sales. "AFM is a breeding ground for really strong direct-to-video genre films."

Lately, however, Amodei can't help but feel that someone is looking over his shoulder. Slumping DVD sales have forced the major studios to think beyond theatrical features and hit TV shows as sources of revenue. The direct-to-video business -- once the domain of tenacious independents like Hart -- has become standard operating practice for the majors. "I think the studios always go where the money's at," Amodei says. "Theatrical product is just not performing like it used to, and this is one category that has been relatively unexplored by them."

Make that most of them. In fact, Sony Pictures Home Entertainment is one of the few majors that has turned a tidy profit in the straight-to-video arena. Over the last 12 years, Sony has released more than 200 DTV titles, both acquisitions and original productions, including Steven Seagal action movies, low-budget genre pickups from AFM and other markets and sequels to such theatrical hits as 1992's "Single White Female," 1998's "Wild Things" and 1999's "Cruel Intentions."

Like Amodei, Benjamin Feingold -- who spearheaded Sony's DTV efforts during his 12-year run as worldwide president digital distribution and acquisitions -- sees an increasingly crowded marketplace.

"I think the other studios are getting into it because -- with the business pretty much flat and catalogs pretty much milked -- they're all looking for other ways to make money," he says. "We've never seen one as a substitute for the other; we've always done both."

"There's obviously a big resurgence going on," adds Steve Bersch, chief operating officer at 20th Century Fox Home Entertainment. "Growth in the DVD business was so exponential in the last few years that you could drive tremendous growth just with the increase in the installed base, the initial release of key catalog titles and TV DVD. But now -- as most of the key catalog and TV franchises have been released, and the growth in the installed base has slowed -- the overall DVD market is slowing as well, and studios are looking elsewhere for growth opportunities."

Fox got into the DTV game relatively late, with "The Sandlot 2," a sequel to its 1993 baseball movie, hitting stores in May 2005 and selling about 1.5 million units. Next came "Dr. Dolittle 3," in April 2006, with sales of 1 million units, followed by "Like Mike 2: Streetball" in June, with sales of more than 600,000 units.

Like most of the studios, Fox spends about $3 million-$5 million to produce DTV titles and generally makes twice as much back. "We look for returns of at least 100%," Bersch says.

Universal Studios Home Entertainment also focuses on direct-to-video sequels to theatrical hits, following its successful experience in the children's arena with a franchise based on 1988's "The Land Before Time." "Bring It On Again," a DTV sequel to 2000's cheerleading comedy "Bring It On," arrived in stores in 2004, but the initiative didn't really get cranking until "Carlito's Way: Rise to Power" and "American Pie Presents: Band Camp" were released last year.

Both titles sold so well that direct-to-video productions are now a regular part of Universal's DVD menu, under the "DVD Original" flag. In August, "Bring It On: All Or Nothing," a second DTV sequel, sold 750,000 units during its first week in stores, generating some $12 million in sales. "American Pie 5: Naked Mile," the latest in a successful DTV series based on the 1999 film, is slated for a 2007 release.

"The strategy we are on is sequels and extended story lines to franchises," USHE president Craig Kornblau says. "To us, it's about creating content for consumers who are clamoring for more of their favorite franchises -- with theatrical-quality production values, including everything from writers and talent to music."

Perhaps the most ambitious commitment to the direct-to-video category comes from Warner Home Video, with a mix of in-house productions and acquisitions. In August, the studio announced it had launched a DTV division, Warner Premiere, headed by veteran marketing executive Diane Nelson, previously executive vp global brand management at Warner Bros. Entertainment. The division will produce up to 15 original films a year, made by well-known filmmakers and featuring name casts. First up is "Dukes of Hazzard II," expected out in spring 2007.

As president of the division, Nelson reports to Kevin Tsujihara, president of Warner Bros. Home Entertainment, and Jeff Robinov, president of production at Warner Bros. Pictures. "Well-executed product for targeted markets can and has proven to be highly profitable," Nelson says. "Additionally, there are growing segments -- particularly teens and young adults -- who do not differentiate product created specifically for DVD and consider it to be as viable and appealing as a broad array of other forms of entertainment."

Warner Premiere's films will have budgets in the $3 million-$5 million range, which Nelson calls the "sweet spot."

Warner already has two other DTV initiatives in play. In March, the studio announced a new line of live-action DTV films aimed at adults, under its theatrical catalog group. "Raw Feed," a line of primarily horror and sci-fi films with budgets of up to $5 million, kicked off Friday with "Rest Stop," an acquisition. In July, the studio announced a joint venture among Warner Home Video, Warner Bros. Animation and DC Comics to create a series of feature-length animated DTV movies based on DC characters. The first three titles in the "DC Universe" line, featuring the Justice League, Superman and Teen Titans, will roll out in early 2007.

Paramount Home Entertainment also has a smorgasbord of DTV initiatives in play, with six productions in the last year, including the animated comedy "Queer Duck," created by Emmy Award-winning writer Mike Reiss and based on characters he created for the Web. "The youth culture does not have the behavioral preconception that only hit theatrical movies have value," says Ellen Pittleman, senior vp worldwide acquisitions at Paramount Home Entertainment. "They prefer to discover their own successes, much like what originally drove the indie film movement."

Kevin Kasha agrees. The former point man for Miramax's myriad direct-to-video sequels to such cult hits as 1984's "Children of the Corn" and 1994's "The Crow" is now back at New Line Home Entertainment, commanding a growing DTV empire as senior vp acquisitions and programming. New Line is one of the most diverse players in the made-for-video pool, with original films, branded urban programming and DTV sequels like "The Butterfly Effect 2." "From a business perspective, profits are certainly contributing to the resurgence," Kasha says.

What all of this means for the independents, however, is less clear. For the most part, people like First Look Home Entertainment president Bill Bromiley say it's business as usual as the studio's DTV efforts "don't affect us much because the studios are creating a lot of their direct-to-video product, not buying it from festivals such as AFM. The studios become competition on the high-cost acquisitions only."

Bromiley also echoes Amodei's sentiments about the continued importance of AFM to independent DVD suppliers. "AFM is very important to us," he says. "It's one of the most important markets for direct-to-video product."