Several years ago, I ran a DVD distribution business. I didn't do a very good job, but sometimes you learn more from your failures than your successes. We were looking to license the home video distribution rights for a number of feature films, and worked with a company in Los Angeles that keeps track of all the independent films that are in production or completed and are looking for distribution. This was a few years ago, but there were more than 4,000 independent films produced each year without committed distribution deals. That's an enormous number by any measure. According to the Motion Picture Association of America, there were 610 movies released in the U.S in 2008. That's about the capacity of the U.S. theatrical exhibition system; they could of course show more films, but it probably wouldn't be profitable for either the exhibitors or the distributors.
Home video used to be a good outlet for a lot of titles that couldn't find theatrical distribution, but independent movie rental stores are all but dead, Blockbuster is "circling the drain", and the other leading rental chains are nearing, in or just existing bankruptcy. Home video is being driven by Netflix and Redbox; Netflix with a huge selection, and Redbox with a very small selection but low rental prices. DVD sales have dropped off due to the economy, and Blu-Ray is nowhere near picking up the slack. The big-box retailers like Wal-Mart and Best Buy no longer discount the new releases as heavily as they once did, slowing sales even further.
For an independent movie producer, the "conventional" outlets are becoming less and less viable. When shelf space is determined by how many discs can fit into a vending machine, the chances for small feature films to get distribution, let alone get noticed, drop to almost zero.
The Internet is seen by many as the savior of independent film, but that's where the filmmaker's paradox kicks in. You can produce and edit a movie today for less money than ever before. Distribution via the Internet is less expensive and more democratic than any method ever available to filmmakers. However, there's very little chance of making enough money from the Internet to cover the production costs of even a small independent film. So, even though it costs less to independently produce and distribute a movie than it ever did, it's no easier to turn a profit.
For decades, independent film financing has relied on an ever-changing assortment of starstruck investors, government agencies offering tax breaks and the families of filmmakers who want to help them make their dreams come true. Every year, there's a new set of players: One year there's money from South Korea, and the next year Germany becomes the big player. Canada and Louisiana compete to see which one can offer the most tax subsidies and the lowest overall production costs. Nothing, however, changes the fact that independent film funding is a sucker's game for the vast majority of investors. Subsidies allow you to save money, but you usually have to make some in order to get the benefits.
So what's the solution? It's attitudinal rather than structural. The Internet is not going to change into a profitable distribution channel any time soon. If you're making an independent film with the intention of making money, you're very likely to be disappointed. In you invest in an independent film with any expectation of making a return on your investment, you're also likely to be disappointed. The trick is to make and invest in independent films with no expectation of getting your money back. Make them because you want to tell a story, because you deeply believe in a subject, or you just want to pal around with actors and directors you admire. Take advantage of the lower costs of production and distribution to make films that otherwise would never have been made.