Sundance 2013: How ‘Arbitrage’s’ VOD Gamble Paid Off

This story first appeared in the Jan. 25 issue of The Hollywood Reporter magazine.

Opening a film simultaneously in movie theaters and as a cable and online video-on-demand offering isn’t for the faint of heart. Two-thirds of U.S. theater owners — panicked about the further erosion of their audience — won’t even carry a film that’s getting a day-and-date release on other platforms.

Some of that resistance might begin to change, though, in the wake of Roadside Attractions and Lionsgate’s multiplatform rollout of the Richard Gere financial thriller Arbitrage. Nicholas Jarecki‘s film debuted at the 2012 Sundance Film Festival. Released in the fall, it grossed $8 million at the box office and another $14 million in VOD sales — that’s not just a good return for any indie film, it’s the most successful day-and-date release by far.

“Even the theaters that did carry it were nervous about hurting the theatrical window,” admits Roadside co-president Howard Cohen. “I’m totally sympathetic, but we’re trying to figure models that work for us. We’re not trying to kill the golden goose.”

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Such smaller art house indies as IFC Films and Magnolia Pictures, both of which have the advantage of access to theaters owned by their sister companies, began experimenting with day-and-date releases several years ago. But for the most part, their titles have done very little business at the box office; in fact, their theatrical runs mostly have been used as a way to promote the VOD offerings. For example, IFC’s On the Road, directed by Walter Salles and starring Kristen Stewart, has grossed a mere $139,363 since debuting in a handful of theaters Jan. 6.

But the mandate is different for Roadside and Lionsgate. They enjoyed a modest success with Margin Call, another financial drama, in 2011, collecting $5.4 million in theaters and nearly $8 million on VOD. So from the moment they first saw and decided to buy Arbitrage at Sundance 2012, they were dead set on making the film work — both in the theaters and on VOD.

“The first question you ask yourself is, ‘Is this a movie you would hurt by putting it out on VOD?’ Our thought was no, since it is a somewhat dark story, with Richard playing the antihero,” says Cohen. “We made an estimation that it would be a good movie for the VOD model because people would scroll through the offerings and see a thriller with Richard Gere and Susan Sarandon in it. That’s a pretty good bet.”

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Lionsgate, which owns a minority stake in Roadside and relies on the smaller company to release more specialized titles, paid $2 million for Arbitrage then cut a deal with Roadside to distribute it theatrically. (The only other bidder at Sundance was Harvey Weinstein‘s new day-and-date label Radius.)

While theater owners generally return half of box-office grosses to distributors, the split is much sweeter when it comes to VOD revenue, with Lionsgate receiving 60 percent to 70 percent, according to insiders.

With the blessing of Lionsgate, Cohen and his Roadside team committed to a major advertising spend to prove to theater owners that they were serious about the theatrical run — and they also budgeted for an awards-season push for Gere, who scored a Golden Globe nom. Nonetheless, Roadside still had to pay some exhibitors upfront to carry the film, which is not the norm. It was able to wrangle 197 theaters for Arbitrage‘s opening weekend, including AMC locations (the giant exhibitor is the only major theater chain to play day-and-date releases). At its widest, Arbitrage played in 256 locations.

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“This has worked out incredibly well for us. More people saw it than would have,” says Steve Beeks, co-COO of Lionsgate and president of the Motion Picture Group. “And we hope that theaters realize we aren’t doing it to their detriment. We are very respectful of them.”

In the end, Arbitrage was one of the most successful — and profitable — platform releases of 2012. Some naysayers argued that the distributor could have grossed even more in theaters with Margin Call and Arbitrage if it had forgone the VOD route, but Cohen contends: “We weren’t saying we didn’t think it had potential; we were saying we think it has potential in a certain zone, where it will be much more profitable if VOD is available at the same time. I believe we got a large number of people to watch it on VOD who weren’t going to go and see it in a theater and may have forgotten about it four months later when it came out on DVD. That’s why we are interested in this space.”