When indie meets digi

Will digital distribution be the savior of independent film?

By almost any measure, Seth Caplan is a thriving indie producer. His feature debut, the wistful romance "In Search of a Midnight Kiss," was released last year by IFC and won an Independent Spirit Award. Caplan has since moved on to producing "The 2 Bobs," a comedy directed by longtime "Smallville" writer Tim McCanlies.

Yet for all his success, Caplan has made money on only one project: "Flatland: The Movie," a playful, 30-minute animated featurette based on Edwin Abbot's cult novella about math and dimensions. The film has never been to a film festival and wouldn't know a movie theater if one fell on its (2-D) head.

Instead, the producer and his partners Jeffrey Travis and Dano Johnson have sold "Flatland" mainly via Web streams and, to a lesser extent, on DVD, marketing it not with splashy print or television spots but with well-placed Google Ad Sense plugs. Since debuting online in fall 2006, Caplan says it has generated twice the profit of "Kiss" despite grossing a quarter of the revenue.

"It's the difference between wealth and poverty, between being able to pay the rent and not being able to pay the rent," Caplan says of the gap between digital and traditional distribution. "When it comes to indie films, the drains are clogged. And what's been clogging them are these middle-men, these layers of sales agents and distributors, which soak up every cent of profitability. You just don't have that with digital."

As the indie world finds its traditional model less viable, more people are holding up digital media as its salvation. Where else, they say, can you reach so many people for such a low cost?

Still, even as so many entities attempt to take advantage of the digital world's shining promise, for most it remains an elusive and even illusory goal.

The past year has brought seemingly one digital announcement after another in the indie world. The news bits come from startups and huge companies, and from unknowns to, increasingly, bigger names.

IFC at Sundance launched Festival Direct, a hybrid on-demand/digital program. John Sloss' Cinetic Media has created Cinetic Rights Management, a combo digital-rights clearinghouse and marketing tool for backlist titles like Richard Linklater's "Slacker" as well as new specialized indie pics like the Eliza Dushku-Joey McIntyre starrer "On Broadway."

And it was through Magnolia -- consistently at the fore of nontraditional distribution efforts -- that Wayne Wang last year released his "The Princess of Nebraska," the first feature from a renowned director to go straight to the computer screen.

Meanwhile, such startup outfits as SnagFilms, B-Side and IndiePix aim to digitally promote and distribute all manner of indie films.

The initiatives are undoubtedly finding an audience -- "Nebraska" generated 165,000 views on YouTube in its first 48 hours, the company says -- giving many proponents hope.

"Digital distribution is becoming the next iteration of home video, much like digital music is the next iteration of the music medium," Cinetic Rights Management chief Matt Dentler says.

But like the digital music space, where artists frequently earn pennies on the dollar compared with their previous take from Tower Records, some fear an increased dependence on digital will mean similarly small profits and expectations. They see it, in other words, not as the salvation of the indie business but as its demise.

At a South by Southwest panel this week, Morgan Spurlock compared two royalty checks he recently received. The DVD check was for $60,000, he said. The digital-stream check was for $2,500.

Those types of concerns -- which even the biggest boosters acknowledge are real -- are keeping many established filmmakers from eschewing traditional models.

But the changing realities might give them little choice.

"If you spend $5 million to make a film and then are looking to recoup with an MG (upfront payment), digital is not going to give you that money," Dentler says. "But we all know those days aren't really here anymore anyway."

Indeed, unlike in other entertainment realms, where people are toying with digital media as a long-term play, the indie business needs digital revenue streams more urgently. Theatrical avenues are drying up. Dozens of high-gloss, professional features with Big Five agency representation now emerge from the major film festivals without a theatrical distribution deal. (There hasn't been a fest with more than a handful of major sales in more than two years.)

Many believe the solution to the pipeline problem has to come from digital.

The major portals are doing their part.

The biggest digital and e-commerce players have dipped their toe in indie waters, with Amazon, Hulu, iTunes and YouTube now having established businesses.

Even those entities, some say, take their pound of flesh in a way that mirrors the middleman-laden traditional world. But those efforts also have worked: Hulu found success with "Crawford," a documentary about George W. Bush's Texas hometown that went out via the site after filmmakers decided they wanted to push the film while Bush was still in office.

YouTube has had its encouraging moments too, generating more than 530,000 views for Hunter Weeks' online-only feature "10 Miles Per Hour," in which he traveled the country on a Segway.

So if these films are so popular, why hasn't the money followed? Mainly, it's because popularity and revenue haven't aligned -- or, in digital speak, these players have yet to monetize their investment.

"The problem with streaming is you need millions of views for what's essentially a niche product," IndiePix president Bob Alexander says. "What streaming can do, however, is provide the visibility and platform to lead to transaction-based sales."

Translation: Streams are good, but they're at their most useful when they're helping to sell DVDs, which is where the real money lies.

Given the battered state of the DVD market, that's not the most progressive or encouraging news.

Still, many believe that as televisions and computers become more integrated, streams will become more popular and turn into a new form of rental that will make up for the DVD shortfall and generate real cash.

Those who become early adopters of new distribution mechanisms, then, would be positioned to capitalize.

Even though there is still only limited money to be made, there might be other benefits to digital distribution. "We can do things you can't do with traditional distribution," YouTube's Chris Dale says. "Our technology has ways of letting us know when, in a film, audience engagement is highest, and filmmakers can use that to tailor subsequent content."

For this reason and others, the indie biz is increasingly willing to sacrifice the traditional for the promise of the unknown, which could pay off in unexpectedly fruitful ways.

Just ask Caplan. "Flatland" has been so successful, he says, that he recently moved forward on that most traditional of Hollywood ideas: He's producing a sequel.